The Indian private equity (PE) industry is going through a tough phase. Many investments made in the economic boom years, now look severely challenged and PE portfolios need to be readjusted. In such a scenario, a shake-out may be the right thing to happen, said Piau-Voon Wang, partner, Adams Street Partners Llc., a global PE fund of funds that has $20 billion (Rs95,600 crore) in assets under management.
Restructuring? Adams Street Partners’ Wang says a shake-out is probably the right thing to happen because despite a benign environment, Indian PE as a whole hasn’t made money.
Wang, who leads Asia investing of Adams Street from its Singapore office, said in an interview that he is looking at buying secondary stakes in Indian funds at attractive valuations. Edited excerpts:
When did you start looking at India?
We started looking at India on a dedicated basis 10 years ago. However, we made our first investment in India only in 2004. We were the first fund of funds in ChrysCapital III when we invested in them. We have a couple of active relationships in India through dedicated Indian funds or global or regional funds. We invest $1.5-2 billion every year globally. Out of that, 10% is invested in emerging markets, where India along with China remain the major focus markets.
Do you also make an entry into funds by buying out existing investors?
In terms of our secondary efforts in India, we did a transaction in 2007. However, the trend has moved on a little. The initial thesis of doing secondaries in India had to do with local banks needing to reduce their private equity exposure to comply with Basel II (accounting standards for financial institutions globally). They needed to adjust their capital base as the capital adequacy requirement is much higher under Basel II for PE exposure.
We did a secondary in UTI Ventures. There were two transactions in the same fund. Up to 40% of our fund can be used to acquire secondary interests. That was our focus initially, buying secondary interests from local institutions who had to sell for regulatory reasons.
Now the dynamic has changed slightly for the next 10 months or so. With the challenges in the global fund-raising, we are seeing Indian fund positions being sold by Western investors in Europe or the US.
What type of funds would you acquire a secondary interest in?
We only acquire interests in those funds which we think highly of. So, it’s a very targeted approach. Some of the best quality names in the Indian PE managers are actually up for sale. So, there are opportunities which are very good and of high quality.
Which are the funds in India up for sale?
Secondary interests are in the funds which have already been raised. Many funds have been raised in the last two-three years, which include both big and small venture funds, growth funds and large private equity funds.
How are the valuations done in the secondary PE market?