BackDomestic funds raise more than $4 billion this year
The healthy numbers are driven by an improvement in investment sentiment around India and a pickup in exits from previous investments
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Domestic fund managers, or general partners (GPs), have raised over $4 billion in funds in 2015, the highest in four years, helped by an improvement in the investment sentiment around India and a pickup in exits from previous investments.
As the mood turned, GPs were quick to go on the road to raise fresh funds which they expect to deploy over the coming economic cycle, according to VCCEdge, which tracks investments and is the financial research platform of VCCircle.
GPs raised $4.3 billion during the year from domestic and offshore investors or limited partners (LPs), shows data from VCCEdge. This is higher than the $3.6 billion raised in 2012, $3.4 billion in 2013 and $3.8 billion in 2014.
Since 2010, 115 India-dedicated funds have together raised $11.5 billion, according to VCCEdge data.
“Confidence of LPs for prospects in India is high and the possibility of high returns is attractive for them," said Renuka Ramnath, chief executive officer, Multiples Alternate Asset Management.
Multiples has raised about $400 million this year, as part of a $600 million fund planned.
Others who went on the road included India Value Fund Advisors, which raised Indium Fund V, a $700-million fund. Everstone Capital, an India and South-East Asia-focused private equity (PE) firm, raised $730 million for its third fund, Everstone Capital Partners III.
A number of venture capital funds, which have seen a jump in investments due to increased interest in India’s start-up ecosystem, also raised funds this year.
Nexus Venture Partners raised $450 million and Accel Partners $305 million, while Helion Venture Partners picked up $300 million.
The cumulative amount of funds raised, however, may mask a divergence in the ability of different funds to raise capital, said Sanjeev Krishan, partner and leader for private equity and transaction services practice, at PwC India.
“In 2015, there were a few who managed to raise their new funds. However, there were many more who could not. LPs today naturally do much more diligence on the GPs than some time ago and this has to be put in the context of their experiences over the previous funding rounds," said Krishan.
Until this year, a number of funds had struggled to secure exits from investments made in previous years. A June report by consultancy McKinsey & Co. highlighted that only 32% of the private equity capital invested in India between 2000 and 2008 has exited, leaving at least $75 billion still under investment. The report also noted that returns have fallen sharply since 2008 and the average holding period of investments has risen.
This year, however, a pickup in the primary markets has allowed a number of funds to exit investments through initial public offerings. Secondary market sales of investments have also been active.
This may allow GPs to raise fresh funds by showing profitable exits. A number of funds are likely to go on the road in 2016 as well, to raise fresh capital.
Tata Capital Growth Fund, which raised $240 million in 2011, plans to launch its second fund in 2016, targeting $350 million. The fund-raising will be launched in the first half of 2016, Mint reported in November.
“We will shortly launch our fund-raising programme and we believe 2016 is a spectacular year for raising capital," Akhil Awasthi, managing partner at Tata Capital Growth Fund, had said.
Another growth capital private equity firm Tano Capital, also plans to raise its third fund of $200 million. Tano raised its second fund of $111.3 million in 2012 from overseas investors. It raised its first fund of $100 million in 2006.
Aditya Birla Private Equity and IDFC Alternatives Ltd are the others actively looking to raise large funds of $400-500 million.
Some will see success while others may not.
“GPs with proven track record will be able to raise funds. I would say it will be a favourable time for GPs in 2016. At the same time, inexperienced GPs will find it difficult," said Ramnath.
Krishan of PwC added that a number of LPs may look to start investing directly in India, which means that funds will have to tap into newer segments of investors.
“A number of LPs are either thinking about or already looking at direct investment platforms in India. As a result, the GP focus in 2016 is expected to be much wider, and include those endowments and family offices which have not been touched yet and who’d like an Indian exposure. Some of these would also be from geographies not tapped before, and where confidence in India is still growing," Krishan said.
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