Indian PE majors rethink their roles

Indian PE majors rethink their roles

Mumbai: The country’s two largest home-bred private equity (PE) firms, ICICI Venture Funds Management Co. (ICICI Venture) and IL&FS Investment Managers Ltd (IIML), are in the middle of a major reinvention exercise.

While ICICI Venture, which manages over $2 billion in capital at present, is preparing to become a limited partner (an investor in other private equity funds), IIML, with about $1.5 billion under management, is looking overseas, especially the West Asian region, to expand its investment activities.

The independent moves by the firms come at a time when the Indian private equity market is seeing an unprecedented inflow from big-ticket global PE firms.

Mumbai-based ICICI Venture is said to be in the preliminary stages of raising a fund-of-funds which will have a corpus of between $500 million and $1 billion. “We are still in the process of firming up the modalities for setting up the fund," said a senior executive at the firm who did not wish to be identified.

This will be one of the firm’s four prospective new funds that are currently in the pipeline—a $500 million small-cap fund, a $110 million mezzanine fund and a hedge fund whose size is not known.

IIML, also based in Mumbai, is in advanced stages of raising a $500-750 million infrastructure fund in collaboration with the Abu Dhabi Investment Co. (ADIC), the Abu Dhabi government’s chief global investment arm. IL&FS will invest $10-15 million in the proposed fund while ADIC will pump in $40 million. The rest will be raised from limited partners in the region, said a person in IIML who is close to the fundraising process.

“There’s a huge focus in the region on building infrastructure. The fund will invest in ports, townships, roads, transport and airports in Abu Dhabi and elsewhere in the region. Fundraising will conclude shortly," said the person.

ICICI Venture, backed by Indian private sector financial services major ICICI Bank Ltd, and IIML, promoted by Infrastructure Leasing & Financial Services (IL&FS), have been active PE investors in the country since the early ’90s. Typically, institutions such as ICICI and IL&FS take on the role of limited partners in developed PE markets such as the US and Europe. However, in the absence of a vibrant domestic PE industry made up of home-bred funds funded by home-bred limited partners, such institutions have taken on the role of direct investors.

Others who fall in this category include Infrastructure Development Finance Co., which is a marquee investor in Mumbai-based IDFC Private Equity that manages about $1 billion in capital and the Small Industries Development Bank of India’s Sidbi Ventures, which invests in small and medium enterprises.

“Over time, if the plans for the fund-of-funds come through, we hope to make direct investments a much smaller activity," said the executive at ICICI Venture.

The firm is currently investing out of the $810 million India Advantage Fund Series II fund and a $550 million real-estate fund, both raised last year. IIML, which will become the first Indian PE investor to foray overseas, hopes to gain an early foothold in emerging opportunities in West Asia, where governments are keen on getting in place the infrastructure to support future businesses.

“Speciality chemicals, entertainment and consumer services are some of the eme-rging opportunities and if we get an early lead as infrastructure investors, it will he-lp prospects in future," said the person at IIML. The firm has raised and invested in five domestic funds till date.