Mumbai: CDC Group Plc. is a fund of funds owned by the UK government with a mandate to put capital to work in emerging economies. One of the region’s larger limited partners, it has invested in at least seven domestic funds, including Actis Capital Llp., ICICI Venture and IDFC Private Equity, in addition to foreign funds operating here. In an interview, CDC Group’s portfolio director of South and South-East Asia, Anubha Shrivastava, spoke about changes in sentiment, fundraising and returns expected. Edited excerpts:
What is your outlook for India, given market conditions?
We have been quizzing all our funds on that question. The Sensex has demonstrated that India is far from decoupled. And with the appreciation of the rupee and concern around inflation, we have tempered our growth expectations. But we still expect to see private equity returns commensurate with the risk we are taking, and far in excess of other markets.
If exits are tougher, how will returns stay strong?
Valuations will come down on?the?entry?side, so?exits?may still yield good returns for us. The recent bout of fantastic exits, though, will slow down.
Will you back first-time funds?
India-positive: Shrivastava says PE returns top other regions.
Our mandate is to encourage capital flow into the private sector. We will continue to look very closely at first-time managers and try to back winning teams. But we don’t expect to be the only investor in (such) funds.
What happens if they have difficulty raising funds?
We actively help our first-time funds get in touch with other investors. In India, we need (more) domestic money. We have seen a few large players, but haven’t seen enough domestic capital. There are regulatory reasons, (but also) people are just not familiar with this asset class.
So will it be hard for first-time funds to raise money?
All in all, the fund-raising market will be harder. Not just first-time managers will have a hard time, but (also) experienced managers.
How will these fears affect emerging markets?
It is a great time for investing, probably a better time than last year. But people may be affected by what is happening in other parts of their portfolio.
What will change in India?
There are some funds that should not have been raised, and some that won’t—that is a good thing. Also, funds have come back to the market more quickly than we expected; some have doubled and tripled the size of funds, and some of that will be pulled back as well. All of these make for a healthier, leaner operating market. The market had given entrepreneurs a false sense of confidence and not let private equity progress in its natural way.