(From left) Babar Ali Khan, overseeing director (investments), Khazanah India Advisors;  Bhavik Damodar, partner (deal advisory) and chief operating officer (advisory), KPMG India; Harsh Singhal, director (growth markets) and head of India, CDPQ; Ravindra Bandhakavi, partner, Trilegal; Samonnoi Banerjee, managing director, Bain Capital; and Srinath Srinivasan, CEO, Oman India Joint Investment Fund at the conclave.
(From left) Babar Ali Khan, overseeing director (investments), Khazanah India Advisors; Bhavik Damodar, partner (deal advisory) and chief operating officer (advisory), KPMG India; Harsh Singhal, director (growth markets) and head of India, CDPQ; Ravindra Bandhakavi, partner, Trilegal; Samonnoi Banerjee, managing director, Bain Capital; and Srinath Srinivasan, CEO, Oman India Joint Investment Fund at the conclave.

Entry of sovereign wealth funds widens scope of investments

Pension funds and sovereign wealth funds generally don't end up competing with PE firms due to the different return expectations and risk appetite, said PE investors

Mumbai: The increasing investment activity of pension and sovereign funds as well as that of strategics will help private equity (PE) funds consummate larger deals through partnering with these deep-pocketed investors, said a panel of PE investors and financial advisers at the Mint India Private Equity Conclave 2018.

In the last few years several pension funds and sovereign investors such as Canada Pension Plan Investment Board, Caisse de dépôt et placement du Québec (CDPQ), Abu Dhabi Investment Authority, Singapore government’s GIC Pte Ltd and others have invested billions of dollars across sectors in India.

“It’s a good thing to see larger number of investors entering the country. On the positive side, there’s influx of capital coming in and it’s an opportunity to do larger deals in India. Sovereign funds are partners for us not only from a fundraising perspective but they actually help in consummating those deals. We often have sovereign funds as co-investors with us. We rarely compete with sovereign funds," said Samonnoi Banerjee, managing director at PE firm Bain Capital Lp.

Pension funds and sovereign wealth funds generally don’t end up competing with PE firms due to the different return expectations and risk appetite, said PE investors.

“Sovereign wealth funds have long-term liabilities which they need to match with the long-term assets. Essentially, they are looking at capital protection and certain yield that they can get which will help them improve the overall yield of the portfolio. Their priorities are driven by capital protection. They do infrastructure deals which have predictable returns. They want to put large money to safe assets and get returns," said Srinath Srinivasan, chief executive of Oman India Joint Investment Fund.

According to Bhavik Damodar, partner (deal advisory) and chief operating officer (advisory) at KPMG India, apart from infrastructure and real estate, pensions and sovereigns are also keen on various other strategies and capital-intensive areas such as stressed assets are a big opportunity for them.

“A lot of sovereign or pension fund’s investments have been in real estate and infrastructure which are long- term yielding assets. But, they look at listed markets, private debt, near- to-list companies and so on. On the stressed asset front, lot of the assets are capital-intensive like power, etc. We are seeing some of the partnerships happening because some of these assets are large and strategic players do not want to stick to one asset but do multiple deals," he said.

For pension funds investing in PE funds and investing directly in companies are two different and essential strategies, and both serve a different purpose.

“We have different asset classes and the asset classes have different investment strategies. Therefore, investing through funds and through direct investment are different class of assets. The market is huge and the better way is to invest through PE fund in the market which further helps us to do bigger deals. The direct investing strategy is to establish relationship and gain knowledge," said Harsh Singhal, director (growth markets) and head of India at Canadian pension fund CDPQ.

Pension funds and sovereign wealth funds would prefer to invest through funds when investing in sectors that need specific investment skills and experience.

“As a rule where we have direct presence, we try investing directly. We generally invest indirectly when we see we don’t have the capability of investing directly or when it’s a venture or early-stage investment. Sometimes, where we don’t have office we would then invest through funds," said Babar Ali Khan, overseeing director (investments) at Khazanah India Advisors Pvt. Ltd, the Indian arm of Malaysian sovereign wealth fund Khazanah Nasional Bhd.

While certain sectors have historically delivered better returns, pension and sovereign fund managers said that the right entry price and betting on the right teams are key to writing large cheques in India.

“Based on our historical experience we have seen sectors such as consumer, healthcare and financial services delivering good returns and are all consumption driven themes," said Khan.

Infrastructure on the other hand, he added, is a sector where one has to get right at the entry level, and thus risk and valuation is the key.

“We have to take better decision on right management, entry prices and so on. India would definitely give good returns but one needs to be patient enough to write large cheques," said Singhal of CDPQ.

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