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Investors start to return to PE funds, but with caution

Investors start to return to PE funds, but with caution
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First Published: Thu, Oct 08 2009. 09 21 PM IST
Updated: Thu, Oct 08 2009. 09 21 PM IST
Mumbai: As market conditions around the globe improve gradually, private equity (PE) firms are readying for fresh fund-raising as investors loosen their grip on capital, though with some caution.
A number of PE funds that Mint spoke with, such as Multiples Alternate Asset Management, Future Capital Holdings, AMP Capital Advisors India Pvt. Ltd and Axis Private Equity Ltd, said they were going back to seek funds from investors to cash in on the improved market environment.
These firms will likely raise at least $2 billion (Rs9,260 crore) over the next six months.
In a Mint poll of at least 30 PE funds at the two-day PE International India Forum in Mumbai this week, at least 70% of the PE funds responded that the fund-raising environment has improved considerably over the past four months.
“Fund-raising is back,” said Yosuke Kogure, vice-president, (Asia Merchant Banking), Nomura International (Hong Kong) Ltd. “It is still not at the levels seen in 2007… But it is lot better than last year’s lows.”
In another sign of improvement, lawyers are beginning to work on fund structures again. Benjamin R. Newland, the Dubai-based partner of US law firm King and Spalding Llp, said he is working on a couple of funds “right now”.
“It was a hard cut last year. But it is recovering,” he said.
Data from Preqin Ltd, a UK-based research firm focused on alternative assets, shows that India-specific vehicles raised $9 billion in 2006, up from about $3 billion the previous year. In 2007, they raised $11.1 billion and $12 billion in 2008.
“An LP (limited partner) told me in 2006 anybody and his dog would have raised an India fund. And in 2007, you didn’t need the two. Only the dog would do,” Alok Gupta, managing director and chief executive officer of Mumbai-based Axis Private Equity, said in his address at the forum.
However, the financial environment took a sharp turn for the worse after the September 2008 collapse of investment bank Lehman Brothers Holdings Inc., followed by a global economic slowdown.
In the first three quarters of 2009, India funds raised just $3 billion.
Vivek Pandit, Mumbai-based partner at global consulting firm McKinsey and Co., said in his address that India needs $85-90 billion of PE investments over the next three years. “The country needs a lot of capital. India’s success so far has been a result of capital being made available,” he said.
Deepak Parekh, chairman, HDFC Bank Ltd, reiterated that sentiment, saying in his keynote address on Wednesday that “India needs private equity much more than private equity needs India”.
That is a gap PE funds are willing to step into.
“As the market uptrend continues, we are planning to raise $300-400 million by 2011 end,” K. Srinivas, managing partner, BTS Investment Advisors Ltd, said.
Samrat Ganguly, managing partner of Singapore-based Capital Square Partners, is planning to raise a $200 million sector-agnostic fund. “We are open to investments all over the world but we will be focusing on Asian investors because Asia understands Asia best,” he said.
Also, a number of PE funds that were struggling to achieve closure are now hopeful of reaching their targets soon.
IL&FS Investment Managers Ltd has received commitments for $640 million in its infrastructure fund and is expected to close it by December.
“We had targeted $750 million when we launched the fund last year but for six months between October and March, the activity had come to a standstill,” Krishnakumar G., managing partner at the firm, who has been meeting investors in Europe and the US, said. “It is only post-May we have started seeing some activity.”
However, LPs, who are the primary source of funds for PE firms, are still cautious about this new found enthusiasm.
“Sentiments have improved over what it was during the beginning of the year. But investors are still cautious,” said Gupta of Axis Private Equity, who is planning to raise $250 million for his India fund.
“We believe there is an overhang of capital. We need to digest that before making further commitments,” said Xiamoei Olivia Ouyang, investment officer, International Finance Corp., which is an investor in PE funds.
Jonathan M. Harris, president of New York-based Alternative Investment Management Llc, put it more precisely: “They (investors) are optimistic, but cautiously optimistic.” n.subramanian@livemint.com
Anirudh Laskar contributed to this story.
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First Published: Thu, Oct 08 2009. 09 21 PM IST