Private equity fund-raising in India hit a new low in the third quarter of 2009 at $1.1 billion compared to $1.3 billion in the same period the previous year.
Contrast this to Q3 2007 when India-specific private equity vehicles posted a record fund-raising of $4 billion, a figure that remains unbeaten in the last 18 quarters. The Q3 2007 numbers also coincide with the market peak followed by steady decline with Q1 2009 suffering a free fall to $0.7 million, reminiscent of the pre-2005 days.
According to data from Preqin, a London-based research firm that tracks private equity fund-mopup activity globally, PE fund-raising dropped to its lowest level in five years in Q3 2009. Globally, the $38-billion in aggregate capital raised by funds holding a final close in Q3 2009 represents a significant drop from earlier this year with Q3 figures equivalent to just 45% of the $84-billion raised in Q2 2009.
In India, the fall in fund-raising has been steep from 2007 to 2008 primarily on account of the economic crisis in the West resulting in drying up of liquidity channels. A similar trend is seen for India-specific vehicles and Pan Asian Funds (that include India investments) which suffered a steep drop to $1.1 billion in Q3 2009 compared to $9.2 billion in the same period a year back.
Data on the number of India focussed funds out on road for fund raising is not available. But, an earlier Preqin report, released in April, suggests that nearly 17 funds focusing on the Asia and Rest of World region raised an aggregate $2.7 billion.
“The number and aggregate fund-raising target of funds in market has dropped considerably over the course of the year due to a slowdown in new launches plus an increase in the number of funds being abandoned or put on hold,” said the recent report. Further, it is taking much longer to close funds than ever before.
Despite the challenging times, the good news apparently is that investors are not shying away from this asset class. They may not only make a comeback sooner than expected but also enhance their exposures. According to a Preqin survey, conducted in August, “over half of investors, 54%, told us they expected to make new fund commitments in the latter half of 2009, and a further quarter said they expected to return to the market in 2010.
Overall, investor appetite for private equity does not generally appear to have been adversely affected by the financial crisis. In fact, 30% of investors told us they intend to increase their allocations to private equity over the longer term and a further 63% intend to maintain the existing level of their exposure.”