IL&FS Investment Managers, a subsidiary of Infrastructure Leasing and Financial Services (IL&FS), is close to raising a $700-million (around Rs 3,220 crore) infrastructure fund with Standard Chartered Bank. With this, the oldest (1989) and the largest private equity fund manager in the country will have $1 billion (around Rs 4,660 crore) of assets under management. Chief Executive Officer and Executive Director Archana Hingorani says the challenging market conditions have resulted in bringing down the original target ($800 million) of the proposed fund. The company has five active funds across real estate, infrastructure and general private equity. The private equity player is looking at an investment of $25-$70 million per deal. In an interview with Shilpy Sinha, Hingorani speaks about new avenues for investments and opportunities in the infrastructure space. Excerpts:
When do you plan to close your infrastructure fund with Standard Chartered?
We expect to close the fund shortly, as we have already raised $650 million and expect get around $700 million. Though this is below our target of $800 million given the unprecedented and challenging market conditions, we are quite pleased with the amount of money raised.
Are you bullish on returns from the infrastructure sector?
Based on our past experience, we do expect returns in the infrastructure sector to be in line with the growth in the private equity sector. In the past, our infrastructure investments have yielded an average return of over 25 per cent. The next level of growth for Indian economy hinges on further development of the infrastructure sector. The current focus of the government on infrastructure makes us bullish on the opportunities in the sector.
What are the sectors you are looking forward to?
We expect the Indian economic growth story to continue to throw up opportunities across sectors. We expect to see opportunities in manufacturing, healthcare, information technology, media, logistics and sectors catering to domestic consumption.
How has the retail participation in private equity been so far?
Indian retail investors have participated in private equity funds in a big way in the last 24 months. However, significant efforts to educate retail participants about the nature of this business are imperative. There is lack of awareness among retail investors about the long-term nature of the private equity business. These are closed-ended funds with a tenure of 8-10 years and not easily tradable. Future participation by retail investors would depend on the performance of the funds already raised.
Has the alternative channel of fund raising affected private equity business?
It depends on the economic cycle. Clearly, in a thriving economy, listings through preferential allotments, qualified institutional placements, ability to access greater level of debt surely pose competition to these players. On the flip side, in the last 18-24 months during the downturn, private equity players have had greater competitive ability to invest. Now, the market is turning around and there is a definite competition from alternative sources of capital.
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Have you seen pressure from limited partners after the slowdown?
There has been no pressure from our limited partners in relation to the drawdown so far, given that a vast majority of our investors are institutional in nature. However, there has been a heightened degree of interaction with limited partners on the health of the portfolio and the performance of the investee companies.
What kind of returns did you see during this financial year?
With the market turning around, we were able to exit from a few investments both through capital markets and strategic sales. These exits include listed investments such as CNN-IBN as well as exits in the logistics and life sciences sectors. Returns on these exits have been over 20 per cent.
What are your expectations for the next financial year?
Currently, we are much focused on our existing investments and ensuring that they continue on the chosen path. However, with the economy turning around, we expect to see equal amount of time being spent on existing portfolio companies as well as consummating new transactions. On fund raising, we expect the environment to be more conducive than last year.
By when will Indian private equity players target controlled transactions?
India is largely a growth market for private equity with minority ownership of such funds. The buyout market in India is at a very nascent stage, with some of the global buyout funds attempting to do some level of controlled transactions. However, most entrepreneurs are uncomfortable giving a majority stake to an investor and as such buyouts are very rare in Indian context. Besides, unavailability of managerial talent or bench strength given the stage at which buyouts are done in India also makes it difficult to operate in this space. Had the markets continued to remain soft, some of the conglomerates may have considered hiving off non-core activities, leading to controlled transactions. But based on the activity on the ground today, we expect full-fledged buyouts to be four-five years away.