Emerging markets’ share of PE commitments estimated to grow from 6-10 per cent of the total at present to 11-15 per cent in 2 years.
The smiles are back with seasoned private equity fund managers in India. Not that they found fund-raising difficult during the past 18-odd months. It’s just that the tidings are much better now. Global fund-of-funds are homing in on India in droves, not wanting to miss the growth wave here.
According to a recent study by the Emerging Markets Private Equity Association, over half of limited partners (LPs) currently invested in emerging market private equity (PE) plan to accelerate their new commitments over the next two years, with emerging markets’ share of PE commitments growing from 6-10 per cent of the total at present to 11-15 per cent in two years.
“Investors expect emerging markets private equity to outperform developed markets, for both recent and future vintages, driven by the view that growth, not leverage, will power returns. LPs indicate their interests are well aligned with their emerging market general partners (GPs), as with their developed market GPs. LPs continue to view China, Brazil and India as the most attractive markets for investment but are also looking for investment opportunities in less penetrated markets,” said the report.
The list of global LPs expanding in India is growing. Pension funds, foundations, family offices, university endowments, fund-of-funds (from North America, Europe, Asia, Africa, the Middle East and Latin America) are all increasing their focus on the country at a time when India-focused PE funds are set to raise $5 billion during 2010.
California Public Employees Retirement System, Capvent, Adam Street Partners, Robert Wood Johnson Foundation from the Johnson & Johnson family, Siguler Guff, Emerald Hill Partners are all increasing their India allocations.
The rush of capital has brought increasing product diversification, driven by the entry of new fund-of-funds managers. Whether motivated by the need for access to best managers, or looking to gain broader exposure, LPs now benefit from a range of choices — from multi-regional or pan emerging markets fund-of-funds that enable portfolio construction from a bigger pool of managers to regional or country funds that claim deep knowledge of a particular market.
Fund managers offering multi-regional scope say while an emerging markets private equity thesis requires specific knowledge and resources for these regions, a broad mandate is crucial for portfolio construction.
Established LPs are highly sophisticated and track the market pretty closely even if they do not invest for a long time. “The approach is to focus on a pool of managers whom we can truly know well, coupled with our global approach whereby we are getting exposure to high-growth investments. We view our managers as conduits to companies we would like to own,” said an Indian manager of a global fund of funds.
“LPs are increasingly looking at managers who have sustainable value-adding strategies. This business is really about due diligence and being plugged in. When evaluating fund managers, you have to ask whether they are rationalising their decisions or do they really have credibility on the street,” he added.
One of the recent examples is that of Multiples Alternate Asset Management, promoted by former ICICI Venture veteran Renuka Ramnath. Last week, it made its first fund closure at $250 million. The fund is targeting a corpus of $450 million. The corpus raised has a dual fund structure where the domestic portion has been anchored by India Overseas Bank and Andhra Bank, and the international part by Canada Pension Plan Investment Board (CPPIB) and CDC, UK.
CPPIB, one of the world’s largest PE investors, has committed up to $100 million to the international fund. Multiples will be among the first India-focused funds to be backed by CPPIB.
Renuka Ramnath, MD & CEO, said: “I am excited and humbled that Multiples has received enormous support from investors in India and abroad. I look forward to building Multiples as a bridge between providers of long-term risk capital and the new generation of capital hungry entrepreneurs in India.” Ascent Capital, led by industry veteran Raja Kumar, is another India-focused PE fund which recently closed a $350 million fund —sailing through in an extremely challenging period for PE fund-raising.
It is learnt that Ascent India Fund III was over-subscribed but the LPs were not in favour of increasing the hard cap beyond what they believed to be the optimal fund size. Ascent Capital, one of the few that have succeeded in closing a fund on schedule, has an association with UTI Ventures. The present assets under management of Ascent Capital are about $600 million. “These two recent instances of successful closure are a clear indication that global LPs are cherry-picking seasoned fund managers who have a good exit track record,” said a PE player. LPs are pretty clear that building a business during a downturn presents a challenging yet an enormously rewarding opportunity. “Due to the markedly changed macroeconomic landscape, future success in PE investing will be driven more by investing acumen than by financial engineering. Firms that successfully maneuver this new landscape will be better poised for growth,” said a PE player.
