Home-grown PE funds raised US$ 2.9 bn in 2015

Home-grown private equity funds have raised $2.9 billion in 2015 from offshore and domestic investors, according to data compiled by Mint.

The tally is set to rise in 2016 going by the number of funds which plan to go on the road next year to raise fresh capital.

At least 11 domestic funds may raise close to $4.4 billion next year, said fund managers Mint spoke with.

“From an India perspective it is a good time for fund-raising and limited partners (LPs) are receptive towards Indian fund managers with a good track record. In fact we would expect 2016 to be a better year than 2015 when it comes to fund-raising,” Siddharth Shah, partner-corporate and funds at Khaitan & Co, said.

Limited Partners (LPs) are investors in private equity funds.

Shah noted that a healthy pickup in the macroeconomic environment in the country and a moderation in the expectations of LPs had helped these funds raise capital.

To be sure, fund-raising has not been restricted to private equity firms. According to VCCEdge, the financial research platform of VCCircle, since January this year 26 dedicated funds in India have managed to raise $3.8 billion across venture capital, real estate funds and private equity funds. This is the highest amount of capital raised over the last three years, though the fund-raising environment is yet to hit the peak of $9 billion raised during 2007.

Sameer Sain, co-founder and managing partner at Everstone Group, which has raised $730 million this year, said that while fund-raising may have picked up, it isn’t easy in the current environment.

“Fund-raising for India-dedicated private equity capital is quite challenging. LPs are highly selective and are concentrating their allocations to very few funds. Firms with a strong platform, good track record and stable talent base are seeing some traction,” Sain said.

After Everstone, the fund that raised the most capital this year is India Value Fund, at $700 million. “We launched our fund-raising programme during November 2014 and raised the capital by March 2015, but during the course of our interaction we found that many LPs are waiting for things to improve in India and those who are already invested in the market are asking why would future returns be better than those that have been generated over the last few years,” said Vishal Nevatia, managing partner at India Value Fund Advisors.

Renuka Ramnath-led Multiples also expects to raise $615 million this year, said a person familiar with the fund’s plans.

“The fund has raised $585 million and is expected to close the entire fund-raise by December by raising $615 million,” said the person quoted above, on condition of anonymity.

Fund-raising activity, which kicked off this year, could pick up in 2016 with a number of funds announcing their intention to raise fresh capital.

New funds which are planning to raise money include Tata Opportunities Fund and Tata Capital Growth Fund, which together intend to raise over a billion dollars, Mint reported on 23 November.

ChyrsCapital, Ascent Capital, TVS Capital, Tano Capital, Aditya Birla Private Equity, IDFC Alternatives Ltd, Motilal Oswal Private Equity are among the others that will be go on the road to raise capital, said people at these funds while declining to be identified.

Apart from domestic funds, Menlo Park, California-headquartered Sequoia Capital also intends to raise a nearly $800 million India-specific fund.

While the improvement in sentiment towards India as an investment destination is helping funds raise capital, a pickup in the pace of exits from existing investments has also been an important factor.

According to Venture Intelligence, a research service focused on private company financials, between January and June 2015, fund managers have managed to return $5.5 billion through strategic sale, secondary deals and sale of shares in listed companies.

Secondaries are deals where an existing private equity fund sells its stake to a peer.

Still, experts are of the view that not all funds will be able to raise capital as LPs have become more selective about the funds that they commit capital to.

“Global LPs have become very selective and are generally reducing their overall global relationships with general partners (GPs) and it has an impact in India as well. They are keen to allocate a larger commitment but with few selective GPs. There are funds who have not been able to fully exit their investments and are therefore finding it difficult to raise capital for their second or third funds,” Vikram Utamsingh, managing director at advisory firm Alvarez & Marsal India Pvt. Ltd, said.

A fund manager, who declined to be identified, acknowledged that the number of active funds has fallen sharply.

“We have seen a lot of correction in terms of the number of funds that have successfully managed to raise capital. There are only 60-70 active funds in India. It has more than halved since 2007 when LPs committed huge amounts of capital to anyone who had an India narrative,” said the fund manager.

One segment which is feeling the pinch is that of growth capital. Investors in this sector typically invest between Rs.50-100 crore in companies which are in early stages of their growth.

“The supply of capital in the Rs.50-100 crore deal segment has shrunk significantly and there are fewer funds looking at these transactions,” said Mukund Krishnaswami, managing partner at midmarket-focused Lighthouse Funds India. “Funds are building capabilities and adding more people to their teams to manage operations of the companies that they are investing in,” said Harish H.V., partner at Grant Thornton India Llp.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.