With the international flow of finance still stagnant, Indian private equity (PE) companies are finding their track records under strong scrutiny in mobilising funds.
This has been complicated by the emergence of a clutch of established industrial groups setting up PE ventures of their own. Newcomers in the industry are therefore forced to look at domestic sources such as banks and high networth individuals.
According to industry sources, these first-time players will have to struggle for the next couple of years as far as the fundraising is concerned.
Vikram Utamsingh, Transaction Services, KPMG said, ?In India, specifically LPs (limited partners) who are either fund of funds or endowment houses or pension firms have become choosier on the general partners or PE funds that they would be willing to invest in. LPs are now more inclined to invest in PE funds that have proved to have built a successful model in India. LPs have also now become aware of the teams and individuals who have proved to be successful in the market.?
Thus, first-time funds such as the private equity arm of Reliance Capital has basically relied on domestic sources to raise about Rs 1,500 crore. The funding was largely provided by SBI, LIC, General Insurance Corporation, Bank of Baroda and IDBI Bank. The fund is targeting close to Rs 2,000 crore. The other corporate houses that have set up PE outfits include Mahindra & Mahindra, Tata and the Aditya Birla groups.
This is despite a surge in global private equity fund raising that has surged 28% to $76.2 billion dollars in the second quarter of 2009, as per a report by global research firm Preqin, after dropping to its lowest level since 2003 in the first quarter of the calendar year at $45.9 billion.
Seasoned players in the PE industry are, therefore, re-educating international investors including limited partners with the track record of successful deployment of their previous funds. Last month, India Value Fund Advisors, which has been around for ten years, closed at $725 million for its fourth fund. Vishal Nevatia of IVF said, ?Though the fund raising environment for PE funds in India has improved over the last few months, it continues to be quite challenging and unlikely to return to the levels of 2007 within the next couple of years?. Others who have used their track record include IL&FS Investment Managers, which targets to close its seventh fund of $800 million by next month, has already raised about $600 million so far. The fund?Standard Chartered IL&FS Asia Infrastructure Growth Fund or SCI Asia?is jointly raised with Standard Chartered Bank. Navis Capital Partners, a private equity firm focused on controlled deals, has also reportedly managed to raise $400-550 million under fund VI which aims to mop up $1.25 billion.
?If you are a first-time fund, this is not the right time. If you have already proven yourself, then the answer is yes,? Utamsingh said. JM Trivedi, head, Actis South Asia, said, ?There is not much of an improvement in fundraising. Fund raising from global investors continues to be tough so some funds are raising money from domestic market.? Actis raised $2.9 billion last year, of which around $1 billion is expected to be invested in India.
