3i is a global private equity fund based out of UK and invests across buyouts, growth capital and infrastructure deals. It has a $1.2 billion India dedicated infrastructure fund which has made investments in Soma Enterprises and Adani Power. Anil Ahuja leads 3i’s investment teams across Asia, working with 3i’s local business heads in China, Singapore and India.
How do you see the fund raising scenario in 2010?
Fund raising activity will be more selective. It will be better in 2010 compared to what we saw in 2008-09. LPs will be lot more careful in allocating capital to first time funds. Established funds will have their task easier as LPs will feel more comfortable with funds having a track record. Number of funds that get allocations from LPs is going to come down significantly as it is very difficult for them to keep a tab on 100 fund managers. So, they will choose 10 or 15 fund managers whom they want to get involved with. This might make things easier for established funds but extremely difficult for new funds.
What will be the focus sectors?
Infrastructure will remain the top sector in 2010 as well. Financial Services, consumer and healthcare will see increased focus from private equity players. Financial Services is an interesting sector but difficult to find deals. With a savings rate of 35 per cent, we have already witnessed the remarkable growth of mutual fund and insurance industry. Much of the financial services space in India is listed where valuation becomes an issue. Within Infrastructure, power, roads, ports and airports are attractive. However, there is lot of frenzy in the power sector and people will wait to see returns on existing investments before making new one.
Will exits be easier next year?
Exits were an issue in 2008-09 but I do not see it being a problem in 2010. There is a market now for practically everything that can be sold and hence I see more exits in 2010. Most of the exits next year will be done through IPOs rather than strategic sales as markets remain bullish.
What are the challenges that private equity funds are likely to face next year?
Valuation is a major challenge that private equity funds are facing and will continue to do so. Markets have bounced back to pretty much 2007 levels. At the same time sustainability of global growth story is not intact right now. So, there will be some sort of cautious approach from private equity funds. The other challenge that I see is retaining good people. An important part for retention is carried interest and as carried interest gets wiped out, incentive to stay with the fund is much lower. So we will see lot of job hopping. For new players, holding on to their team will be difficult.