Transparency, corporate governance and return on capital are necessary for private equity funds to attract domestic pool of capital from HNIs and institutional investors, believe experts who attended the recently concluded VCCircle India Limited Partners Summit 2014.
Eminent panellists consisting of regulators and fund managers voiced their opinions on limitations of attracting capital due to lack of good exits, lack of transparency and above all lack of knowledge about this asset class among local investors.
The panel, moderated by Gopal Srinivasan, founder chairman and managing director, TVS Capital Funds Ltd, highlighted some interesting aspects of the relationship between general partners (private equity funds) and their investors known as limited partners. Following are some of the forward-looking observations made by the panellists:
Ananta Barua, executive director, SEBI
“Post 2008, there were many requests by private equity firms seeking concessions in investments and there were genuine concerns regarding loss on investments especially in startups. Since private equity is patient capital for long-term investment, we floated a consultation paper. This included three categories where the first one was for startups and venture capital investments. The second category was for private equity funds and the third category was for hedge funds which were earlier under portfolio management services,” Barua said.
“When we held consultations with the private equity fund managers, they requested flexibility in investments since they have several internal restrictions. Hence, we gave them total operational flexibility,” Barua said.
Anup Bagchi, executive director, ICICI Securities Ltd
High net-worth individuals (HNIs) initially entered the PE industry out of curiosity and based on the belief that these investments are not correlated with the public markets. “Today, HNIs have also realised that there are other asset classes which provide similar or better returns. That is the reason why you notice that most funds are now coming in the real estate asset class and not in the core private equity. Plenty of liquidity is available but the awareness and knowledge regarding asset class need to come in,” Bagchi said.
Satrajit Bhattacharya, joint general manager – treasury, HDFC
“When we compare returns between our direct investments and private equity funds’ investment, the investments in the latter have not been great. Over $30-40 billion of institutional capital is coming from banks and companies which call for greater engagement. If you see that the fund management teams engage at the institutional level, there will be a sense of ownership and a greater deal of partnership. India is a little different and is an emerging market; so I think a little engagement would help,” Bhattacharya said.
Vishal Tulsyan, chief executive officer, Motilal Oswal Private Equity
Fund managers blame the emerging class of private equity funds for lack of performance. “There is some amount of immaturity in the private equity industry because we were also in the early phase of evolution. In India, HNIs talk of a seven-year funds unlike the traditional 10+2 years. That is not an adequate timeframe to show good returns. Banks, which are investors with huge investment capacity, are finding it tough to invest in PE funds. They have a 200% charge on the capital invested in PE funds,” Tulsyan said.
Fund managers like Tulsyan believe that private equity funds are India’s first national need. “In the first flush of private equity funds, more than 100,000 jobs have been created by making just Rs 500 crore worth of investments.”
Gopal Srinivasan, founder chairman and managing director, TVS Capital Funds Limited
“Investors want more transparency and private equity firms should express their strategy more clearly to the institutional investors and engage with them a lot more, and educating the investors is very critical. Also, the time for buyout funds in India has come. PE funds require more time and the regulatory authority should encourage more fund managers who will make money for the investors. SEBI should give PE funds more support and lot more advocacy,” Srinivasan said.
