India is a difficult market for private equity investors and PE fund managers need to create more exits to sustain investors’ interest in the country, panellists at VCCircle’s flagship Limited Partners Summit 2016 said.
In a discussion on the changing dynamics between limited partners and general partners at the summit held in March, the panellists discussed the challenges that India poses for LPs.
Lucian Wu, managing director at HQ Capital; Simon Hopkins, CEO, Milltrust International Group; and Jürgen Rigterink, chief risk and finance officer at FMO; took part in the discussion.
Wu said his firm’s exposure to India was 20 per cent, which he said was not a small percentage. While there have been returns from certain fund managers in India, on the whole the track record for PEs was poor.
“I think the key is to choose the right managers, the right sectors,” he said. “You have to be careful how you choose your managers here. If you benchmark India and China, there’s still a gap in terms of the size of the market and the number of managers that can demonstrate a consistent track record of making money and generating returns for investors,” he added.
Hopkins offered another perspective when he said that a public equity market vehicle it launched in a joint venture has outperformed some PE funds. “It’s by far the best performing fund of any emerging markets fund since we launched in 2012 and has delivered returns in the order of 25 per cent,” he said.
Globally, 67 per cent of PE businesses have not been able to raise money after the global financial crisis, according to Hopkins. As far as India is concerned, he said, it remains to be seen whether the old model is the appropriate way to invest, despite anecdotal feedback that indicates disappointment.
A trend that is becoming common is co-investment. “Large LPs will now invest only if they can have significant co-investment rights so that they can circumvent the costs of the infrastructure of private equity and the embedded costs within those organisations,” explained Hopkins.
According to Wu, if global investors were to choose between India and China on their investment portfolio, China would be the obvious choice. “To generate more global interest in the market, we have to see more exits coming out from this market [India], which we haven’t seen enough,” he added.