Private equity as an asset class has been badly hit in the ongoing global financial crisis. But, there is no taking away from India, which has over the last few years emerged as a region of choice for a large number of overseas investors who want an exposure to this asset class.
That said, the general risk aversion brought on by the credit crunch the world over may pave the way for a private equity investment structure that is not yet very popular in the country: fund of funds (FoF).
Asieh Mansour, managing director and chief economist and strategist for RREEF Alternative Investments, the global alternative investment management business of Deutsche Bank said, “Across surveys that we've conducted, the message is clear that overseas investors have the Asian region, including India, on top of their radars, but would rather opt to invest via a fund of funds than maintain direct relationships with a 100 private equity funds that may be operating in the region.”
Piggybacking on FoFs, these investors, also called limited partners (LPs) — typically corporate and public pension funds, financial institutions, insurance companies and university endowments — can get a prudent exposure to Asian private equity while also reducing their own costs by having less people on board to maintain relationships with individual private equity funds.
In an October 2007 report, knowledge process outsourcing firm Evalueserve estimated that there are 366 private equity and venture capital firms operating in India, and another 69 would start operations soon.
In such a scenario, with so many firms to choose from, an overseas LP would certainly be better off investing via specialists such as FoFs.
Somewhat predictably, Kohlberg Kravis Roberts (KKR), one of the largest US-based private equity firms with assets of around $85 billion under management, is confident of gathering investors if it decides to raise an India-dedicated fund, what with a track record since 1976. The firm is currently on the hunt for a person to head its yet-to-be-launched India operations.
But, there are many other funds, smaller and with less of a history, that have also been scouring the country for opportunities, and about which LPs know little.
Partners Group, a reputed fund of funds, is said to be exploring options in the Asian region.
Banks such as UBS, Credit Suisse and Goldman Sachs also operate as FoFs in various markets, though they have direct private equity arms as well.
Some experts, though, feel the Indian private equity market needs to mature more if it is to attract more FoFs.
Varun Sood, founder and managing partner of Bangalore-based Capvent India Advisors said, “Developed markets are dominated by specialists such as fund of funds. In India, this structure could still take some time coming, considering the market is not that deep.”
Capvent is one of the few operational PE firms in the country. Among the other known names going are Evolvence India and Thomas Weisel International.
“To start with, many fund of funds from the Western markets could start with a hub in Singapore or Hong Kong, and oversee Indian PE funds from there,” he added.
Source: Sify