The $550-million Baring Private Equity Partners India is considering launching its fourth fund, possibly in the range of $500-700 million. However, raising money from investors would be challenging, owing to a shrinking investor pool. Partner and Chief Financial Officer S M Sundaram, in an interview with T E Narasimhan, says investors are worried about the uncertainty in India. Edited excerpts:
Baring Funds began investing in Indian entities in 1997. How has the journey been so far?
In 1997, there were hardly four or five funds in India and the opportunity was enormous. Investors were bullish. By the end of 2010-11, the number of funds rose to about 600. Now, the investment and fund-raising climate are tough.
What are the challenges in the current environment?
There is reluctance among investors. India was a ‘pull’ market (investors came to invest). Now it has become a ‘push’ market (funds have to convince investors to invest).
Consider our example. In 2007, when Baring wanted to launch a $450-million, there was overwhelming response from investors. They were excited, and this led us to launch a $550-million fund instead. That is not the case now.
How much has Baring invested in India? What is the size of the fourth fund? Which are the sectors you are bullish on?
We have invested $350 million, and the remaining $200 million would be invested by 2013. We may look at launching the fourth fund by 2013-14. Sectors that are asset-incentive and would record growth higher than gross domestic product growth are the primary focus.
What challenges do you expect during fundraising?
The first major challenge is related to the global situation. The allocation for India is shrinking, as investors find Latin America, Russia, Brazil, South Africa and Indonesia attractive.
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The second concern is related to India, and everyone is talking about it — lack of government action and corporate governance. The problem with the government is, it is coming up with long-term policies and then changing these — as in the case of Vodafone. This leads to confusion and uncertainty. Instead, the government should come up with short-term policies. That way, investors would be prepared for a policy change.
When it comes to India, investors are increasing the risk premium on investments, and this is not a good sign.
In India, no one is addressing constraints relating to investor sentiment. Also, there are issues with governance in companies and their ability to protect the interest of minority investors. Another concern is that funds have not seen any good exits in a long time.