Mumbai: Reliance Equity Advisors (India) Ltd, the private equity (PE) arm of Anil Ambani-led Reliance Group, plans to start a $250-300 million (Rs 1,125-1, 350 crore) fund by the end of the year.
“The fund will be raised from overseas investors,” said Ramesh Venkat, chief executive officer of Reliance Equity.
The company is currently investing from its $220 million domestic fund that raised money from institutions and a few rich individuals. “We intend to deploy about 60% of this fund by the end of the year,” said Venkat.
While the domestic fund-raising market has been favourable for PE fund managers, raising funds overseas continues to be a challenge.
Investors in PE funds, or limited partners (LPs), have turned cautious and are laying down tougher terms for investments. LPs are looking into areas such as team composition of PE funds and questioning fund managers on their promises.
Apart from these, investors are looking at factors such as whether a fund is corporate-backed or independent. Some LPs prefer independent funds as they feel corporate-backed funds may face a conflict of interests with the parent.
“About 10% of the LPs that invest in Indian PE will say no upfront if you are a corporate-backed fund,” said Venkat. However, a majority, about 75-80%, of the LPs are willing to invest in a corporate-backed fund if they are satisfied with its governance structure, he said.
Governance includes factors such as conflict of interests and profit sharing with the parent, among other issues.
“Another concern that investors or limited partners have is that fund managers have raised large funds and have not been able to deploy it,” said Hetal Gandhi, managing director at Tano India Advisors Pvt. Ltd, a PE firm.
At least 117 private equity and venture capital funds are raising money to invest in India, according to data from Preqin Ltd, a UK-based researcher that tracks the alternative investment market.
Reliance Equity has deployed about one-third of its local fund. Investments include Pathways World Schools and Shankara Infrastructure Materials.
Reliance Group has also expanded its portfolio in its asset reconstruction business—Reliance Asset Reconstruction Co. Ltd (ARC).
“Last year (fiscal 2011) was the best for Reliance Capital’s asset reconstruction business,” said Venkat, also a director at Reliance ARC.
The firm picked up bad loans worth around Rs 784 crore in fiscal 2011 at steep discounts from Indian Bank, Vijaya Bank and Central Bank of India. Before this, Reliance ARC had about Rs 100 crore of assets.
Other companies in the sector say they have hardly made any significant addition to their asset base in the fiscal year gone by because of a mismatch in expectation between banks and the ARCs on the pricing of these assets.
Reliance ARC expected an internal rate of return of 15-20% over the next three to five years by trying to recover money from these assets, said Venkat.
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