PEs' fund raising plan takes a knock

A well-known domestic private equity fund, part of a reputed infrastructure funding house, is finding it difficult to raise $400 million for a growth capital fund that would invest in mid-, and large-cap companies, thus delaying the closure of its third fund.

However, the Mumbai-based firm has so far managed to raise only $150 million and is finding it tough to raise the balance, given the volatile market conditions and credit crunches.

The diminishing appetite of investors is hurting the fund raising plans of the PE players. Corporates are also in a tight spot as the markets have turned unfavourable in terms of raising money.

Said a source at the financial institution, "We are hoping to close the fund by June-end and there is a possibility of falling short by 15 per cent."

Since there is a turbulence in the global markets, some of the PE players are postponing their fund raising plans, while others are revising their original targets and extending closing dates for their funds.

According to banking sources, ICICI group "" which is planning to raise over $7 billion for its PE activities "" said the entire process is being prolonged because of the market conditions.

"The fund raising plans of PE firms will be dampened considering the current market conditions. There will be a temporary flip," said P Harshavardhan, partner & director, Boston Consulting Group(India).

According to industry estimates, the amount being raised by PE players is more than $12 billion this year. This figure, however, does not include real estate funds.

Factors that have led to the meltdown include signs of a slowdown in growth in the US, a liquidity crunch and the spreading of the impact of the US sub-prime crisis to other markets across the globe.

"If you are raising a Asia-dedicated fund, then you are on the better side because markets have topped in Asia and it will give much higher returns to investors. It is not highly leveraged also as compared to the US and other European markets," said a country head of one of the largest global funds.

Most of the limited partners (funds that invest into private equity funds) are investment banks, family offices, provident funds, insurance companies, university and endowments funds. Also PE firms receive a major share of money from the US.

"Given the state of the capital markets, fund raising plans of PE funds will get impacted as investment banks and family offices who invests into these funds will reduce their exposure," said Ranu Vohra, managing director, Avendus Advisors.

However, Varun Bery, managing director and co-head, Private Capital Asia, JP Morgan Securities (Asia Pacific), is of the view that despite the market conditions, funds that have an excellent track record will continue to get money.