The outlook for private equity and venture capital funds in India continues to be grim, especially for those who have allocations from institutional investors and endowment funds, believes Professor Rafiq Dossani, Executive Director – South Asia Initiative, Stanford University. “Endowments have started cutting the allocations to PE/VC funds and its going to have a massive impact on India,” said Dossani at a talk arranged by TIE Delhi.
Typically, university endowment funds or pension funds in the United States are limited partners to venture capital and private equity funds in India, and account for a major chunk of inflows into these funds. Most of them have 35% of their portfolio allocations into alternative assets such as PE/VC funds, hedge funds etc. These portfolio managers have strict guidelines for asset allocation.
Now, as the public markets have collapsed and the prices of liquid assets have plummeted, the value of their overall portfolio, or the denominator, has shrunk. Now, in order to get back to their targets, most of these managers are rebalancing their portfolio by selling off the private-money investments. For instance, Harvard’s endowment, which has a $37 billion portfolio, is offloading $1.5 billion in private equity to get back to its 13% target. Then there are others like Duke University, University of Virginia and Columbia University who are also looking at offloading their VC/PE portfolio.
“The era of cheap capital is over and sources of capital would now want an increase in returns,” said Dossani. He said that the amount of capital available has gone down by 80-90% in the short term, which indeed means difficult times for fund raising ahead. Dossani said that India would now need to tap the countries with highest savings – Japan, United States and China – in that order.
Dossani added that the new administration under President-elect Barack Obama plans to spend on areas such as healthcare and clean technology and Indian entrepreneurs should look for outsourcing opportunities in this sector. Further, Dossani opined that the rate of growth for the Indian economy will go down to 6-6.5% , but the country will still continue to attract increasing foreign direct investment (FDI) as growth rate remains above world’s average.