India has room for disciplined capital and local resources of money and funds with a positive track record for private equity fund managers will always find takers.
These views and more were expressed by panellists at the recent VCCircle India Limited Partners Summit 2015. The panel was moderated by Akhil Awasthi, managing partner, Tata Capital Growth Fund. Others like Jane Rowe, head private equity, senior vice-president, Ontario Teachers' Pension Plan; Brooks Preston, vice-president – investment funds, Overseas Private Investment Corp; Jaganath Swamy - VP, Harbourvest Partners (Asia); and Manish Kejriwal, managing partner at Kedaara Capital, participated in the discussion.
The panel started the discussion with limited partners (LPs) dividing their experience in India between pre- and post-global crisis. “Pre-global financial crisis, we were caught up in the heady days and we committed capital sometimes doing without the right amount of work and we made that error globally, not just in India. So our track record at that time did not do well for us,” says Rowe of Ontario Teachers' Pension Plan. Like many other large LPs, Ontario Pension Plan also became more cautious and strict about GPs having good track records. “We try to find partners that hopefully have access to proprietary deal flows and are not simply going to operate in auctions,” she said during the discussion.
Some LPs also blame the herd mentality for not being able to see returns from India. “It amazes me how PE investors who are supposed to be long-term investors move so quickly with geographical trends,” says Preston of Overseas Private Investment Corp. LPs like him prefer PE funds that can attract institutional capital globally and in India. “It would be wonderful to see more local LPs in local funds. I cannot emphasise how attractive that is for a foreign investor,” he said.
Apart from LPs, even GPs agree that disciplined structure is the need of the hour for private equity in the country as many factors today are in favour of the fund manger. “Firstly, the environment for GPs in India has improved from 2006-07. Secondly, there is far less competition; the subsidiaries of large merchant or corporate banks have stopped deploying capital. Thirdly, there is lot more collaboration with a few number of players out there,” says Kejriwal of Kedaara Capital.
The discussion ended with a united opinion on entering at the right value to make a good exit. “If you come at unreasonable valuations, you will get unreasonable returns,” Kejriwal says. “To have big discipline on entry point, operational and fundraising discipline is very critical. If GPs get this right, then there is money to be made in India,” says Swamy of Harbourvest Partners (Asia). According to him, VC firms are able to attract more capital because they can identify new trends and collaborate with companies that have high growth potential.