Money with alternative investment funds up 84% year-on-year
In an indication of a growing pool of capital available for investment, around 135 alternative investment funds (AIFs), comprising hedge funds, private equity and venture capital firms, are sitting on a cash pile of over Rs 28,000 crore, as per data from the Securities Exchange Board of India.
The dry powder (funds raised but not yet invested) as on June 30 rose nearly 84% from the same period last year to Rs 28,283.54 crore. AIFs invested Rs 9,094.55 crore, while commitment and fund raised added up to Rs 37,378.09 crore.
Despite a rise in dry powder, industry watchers are sure AIFs have learned from past mistakes and now attach greater weightage to the sector and ‘right” valuation of the company they invest in.
“Global funds remain very positive on India. But quality of deals and sensible valuations will drive actual investment,” said Vikram Hosangady, head of transaction and restructuring at KPMG India.
As per Grant Thornton, in the first seven months of 2015, there were 573 deals totalling $9.2 billion. This comprised 332 deals in the IT and ITeS sectors, accounting for 38% of the total invested. BFSI comprised 11% of the total amount invested. In 2014, there were 604 deals worth $12 billion.
PE funds invested around $19 billion in India in 2007, the highest quantum of PE investment made into the country in a single year ever. This was followed by investments of around $10 billion in 2008.
In the past, as per McKinsey data, the quantum of funds available for investment to PE fund managers rose from $0.1 billion in 2004 to $22.5 billion in 2009. This led PE firms to shift allocation towards the infrastructure industry, and subsequently the average holding period of investments increased from 3.5 years in 2004 to 5.2 years in 2013.
“With excess capital in hand, general partners increased transaction sizes and invested in a range of sectors, many of them capital intensive, relatively illiquid, and requiring longer times to exit. As a result, returns have been hurt, exits have been scarce,” said a February Mckinsey report.
Amit Bhagat, MD and CEO of real estate-focused PE firm ASK Property Investment Advisors, says a lot of PE money went into long-gestation projects like retail malls, townships and property investments in tier II and III cities between 2005 and 2008.
“PE funds are looking to sell their stakes in such projects back to the developers, but in some cases the latter are not keen,” Bhagat said. “In such situations, the PE fund can consider the arbitration route if it was a structured finance deal. But if it was a pure equity deal, one has to try and come up with a mutually acceptable solution.” Vishakha Mulye, MD and CEO of ICICI Venture, says there are many unlisted companies that have great potential, and expects private equity investments to increase by around 25% in 2015.