India-focused PE firms look at $30 bn inflow

India-focused PE firms look at $30 bn inflow

Mumbai: Private equity (PE) funds worth $30 billion (Rs1.23 trillion) are expected to be raised or committed for investment in India over the next three years, according to various industry research reports.

But how much of this money will actually flow into the country will depend on a couple of related factors.

First, PE firms that have already raised funds—an estimated $10 billion—will be under pressure over the next 12 months to deploy this capital. Second, PE funds will have to retain the confidence of their limited partners (LP)—investors who put money into PE funds—through their investment and exit track records during this period.

Though LPs remain confident of the long-term opportunities in emerging Asian markets, notably India and China, many have turned cautious in recent months with respect to allocating fresh capital in the immediate term.

“LPs will back Indian funds, but only those with on-ground track records and strong management teams. About 50 local firms are currently in various stages of raising funds, but it is likely that only 10 will actually raise money this year," said a Zurich-based LP with offices in Bangalore.

Most of the concerns regarding the Indian market are based on fears of unrealistic valuations, with too much capital chasing too few deals.

Some of the marquee long-time LPs who have returned to invest in Indian funds include Harvard Business School (HBS), Stanford University, the California Public Employees Retirement System (CalPERS) and Princeton University.

Delhi-based ChrysCapital Investment Advisors raised a $1.25 billion fund last month, which is also the largest fund raised by a homegrown firm. On the venture side, Bangalore-based Sequoia Capital India raised a $300 million early-stage fund in August.

While LPs such as HBS and Princeton understand the Indian market because of their longer association, newer investors (see accompanying snap profiles) who are less experienced have begun to take a more proactive approach to investing here.

Many of the mid-sized LPs, who will increasingly constitute the bulk of LP money coming into the country, prefer to invest directly in companies alongside their investee funds in a bid to understand the market.

Many of these mid-sized LPs will convene in Shanghai, China, at the Capvent Annual China-India Private Equity Summit 2007 over the next three days, from 5-7 September, and will brainstorm on issues that investors could face while allocating money to these markets.

Over 100 LPs and PE firm professionals are expected to attend the event, including a delegation of about 30 from India. The 2008 edition of the event will be held in India.