Global investors see India as key market for private equity investments: Coller Capital report

Nearly two-thirds, or 68%, of respondents see an improving risk to reward balance in India, followed by the other Asia Pacific markets, the report said. The limited partners in these regions have shown the strongest appetite for secondaries with about 42% planning to boost allocations ahead of other developed nations like Europe (38%) and North America (13%). The survey has a sample size of 107 private capital investors from around the world and they oversee a combined value of $1.9 trillion in assets under management (AUM).

“I think India is a very interesting market when it comes to private investments. The country has been getting a lot of attention from global as well as domestic investors who have expressed intent to increase presence," William Yea, investment principal at Coller Capital, told Mint.

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“Additionally, the public markets are also able to offer great exit opportunities for a lot of these managers which contrasts with the other Asian markets that do not have the same vigour currently," he said, adding that India, unlike other markets, has shown a strong rebound and an ability to offer liquidity to companies at an earlier stage.

Keen on India

This year, London-based Pantheon Ventures outlined plans to increase its pace of investments in the country. US-based HarbourVest Partners also echoed similar sentiments to scale up its funds and direct investments in India, joining a lengthening line of firms turning their attention to the country. They have backed prominent Indian PE firms like ChrysCapital and Kedaara Capital.

The Indian ecosystem has also seen a growing trend of fund managers branching out of reputed venture capital (VC) and private equity firms to start off on their own, which has created new pools of capital for companies to tap. Some examples include former Orios Ventures’ partners Rajeev Suri and Anup Jain’s BlueGreen Ventures and former Peak XV’s managing director Piyush Gupta’s Kenro Capital which will target secondaries in the country.

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While pan-Asian funds have emerged as one of the most important avenues for global investors in Asia, limited partners (LPs) are also wary of the scarcity of private equity talent, competition for deals and a challenging exit environment in countries like India. To be clear, limited partners are investors in private equity or VC funds while general partners or GPs manage these funds.

To navigate these exit challenges, investors are actively encouraging companies to tap the public markets at an earlier stage in countries like India that has more relaxed rules to go public. For instance, Unicommerce, which went public this year, only had an offer-for-sale component to give some of its early investors an exit. Others have also adopted similar strategies to give their backers a part or full exit.

Exit timelines

Globally, two-thirds, or 63%, of investors feel that the current exit timelines communicated by GPs are optimistic but only 32% feel that these timelines are realistic. They believe that there could be more transparency around future call and distribution activity to better manage cash constraints.

The report found that almost 88% investors expect to decline to reinvest with some of their existing GPs over the next 12 months amid tightening liquidity constraints. Over the last year, almost 79% of global investors and 67% of Asia Pacific investors said they have declined to reinvest with at least one of their current GPs, which could curb the size of funds. These investors have declined to reinvest for a host of factors including their own limited capital availability and performance-related reasons.

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“The liquidity crunch and a lull in M&A (mergers and acquisitions) activity has led investors to exercise a degree of caution when it comes to reinvestments, yet LPs are still showing a strong appetite to expand their allocation to private markets," said Jeremy Coller, managing partner of Coller Capital.

A significant chunk of global investors sees mergers and acquisitions as the primary driver of value creation within GPs’ portfolio companies over the next two to three years. They believe that the next driver of growth will come from sectors such as digitalization and artificial intelligence (AI).

For the year ahead, almost all investors plan to increase or maintain their allocation across various instruments in the alternate investments space, the report said. This is in line with several VC firms like Stellaris Ventures, Blume Ventures and 3one4 Capital that have emphasized on having leaner funds to ensure better returns and exit multiples in accordance with opportunities in the market.

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The report highlighted that 90% of the surveyed investors plan to increase or maintain their allocation to PE while 89% intend to do the same for secondaries. “Secondaries have really started to pick up in India in recent years although they have existed for quite some time. People have begun to realize that secondaries play a key role in providing liquidity and it complements the private ecosystem which is beneficial to both GPs and LPs," Yea said.

Founded in 1990, Coller Capital is one of the leading investors in the secondary market for private assets and provides liquidity solutions to investors globally, acquiring interests in private equity, private credit, and other private markets assets.