PE funds feel slowdown, rupee pinch

Oct 07 2013, 10:02 IST
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Tata Capital Growth Fund has changed tracks and reduced its planned fund size to slightly over $350 mn compared to the $400 mn target set at the time of the launch. Tata Capital Growth Fund has changed tracks and reduced its planned fund size to slightly over $350 mn compared to the $400 mn target set at the time of the launch.
SummaryBetween Jan 2010 and Sept 2013, 125 India-dedicated PE funds went on road to raise $19 bn cumulatively.

Warburg Pincus veteran; Rohit Kapur, a former KPMG corporate finance practice head; and Cyrus Driver, then head of Helix Investments in India.

Of the three, Driver has joined Switzerland-based private market investment manager, Partners Group, as managing director and India head. It is no longer about the fund managers now. The LPs want to wait and watch because the environment is extremely volatile and they have not seen any fundamental changes happening. Investors usually wait before an important event and then take a decision accordingly. Since elections in 2014 will be a big event, we can expect more capital coming in after that, said a senior fund manager.

PE firms, along with sovereign funds, have invested $30 billion in India between 2010 and August this year, as per data provided by consulting and audit firm Grant Thornton. Clearly, 2012 had a decline compared to 2010 and 2011 largely due to the Vodafone and other tax/regulatory issues. If one goes by 2013 numbers to August and expectations for the rest of the year, we expect total investments in the same ballpark in 2013 as in 2011/2010 which was $8 to $9 billion, said Mayank Rastogi, partner, private equity and transaction advisory services, at consulting firm Ernst & Young (E&Y).

The activity in the mid-market space and the new money capital raise have been impacted by lack of capital investments for expansion and general slowdown in demand in a number of sectors. Deals are being more driven by need for liquidity of existing investors and leverage considerations, he adds.

Along with difficulties in raising fresh capital, PE funds also continue to struggle with profitable exits which have been limited by the volatile equity markets and the inability of companies to meet their growth targets against the backdrop of a weak economy.

There were a large number of funds raised during 2006-07 which had to be invested /deployed during the next three to four years. However, given the economic downturn in 2008, the investing cycle period got extended by another two to three years. The PE fund-raising climate has indeed been moderated in the past two years driven by the global macro-economic scenario, challenges in exits with good returns and the overall deceleration of the India's growth momentum, said Raja Lahiri, partner, transaction advisory services, Grant Thornton.

The need for larger funds has also reduced the attraction of mid-size funds. PE funds are looking at

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