India embarking on ‘wonderful fundraising cycle’

LPs at the PEI India Summit believe interest is back in the country’s scorned private equity market

Even limited partners that have gone sour on India over the past 24 months are reinstating their interest in the emerging giant as its growth story is unavoidable, delegates heard at Private Equity International’s India Summit 2014 this week.

On the LP panel that closed the day, investors were bullish about the upcoming cycle for India’s private equity industry.

Juan Delgado-Moreira, managing director at Hamilton Lane, said, “India doesn’t really fall off the agenda – and I don’t even think it has been out of favour for that long. I think we are about to see a wonderful fundraising cycle again.”

Fellow panelists agreed, with Jaganath Swamy, vice president at HarbourVest Partners, saying the firm intends to have an active year in India, although would not provide further details. Similarly, Delgado-Moreira said Hamilton Lane expects to continue to be active, having had its busiest year ever in India during 2013.

However, while panelists praised India for carving out its niche as one of the world’s most consistent and attractive growth markets, there was clearly an emphasis on exits and returns.

“Every time we talk about India in our investment committee, it is benchmarked against every other opportunity we have. Our clients are not interested in diversification in their private equity portfolio as much as they are interested in returns from their private equity portfolio,” Matthew Smith, managing director at Abbott Capital Management, explained.

Abbott has made one commitment to India in recent years, but is actively assessing more opportunities on a highly-selective basis.

Swamy and Delgado-Moreira do admit that their optimism is not generated by the cash they’ve seen return from Indian GPs in the past, but instead by how large the long-term potential is. Delgado-Moreira adds the mark-to-market of many funds is promising.

Nevertheless, panelists agreed the market has been maturing, with GPs engaging more with their investors.

“From a private equity perspective, the key is actually capital dialogue. If the private equity community opens itself up to being transparent, to listen to investors’ needs or criteria, they can adapt their models a little bit, tweak them a little bit, and actually build really good businesses,” moderator Mounir Guen, chief executive officer at MVision Private Equity Advisers, said.

Delgado-Moreira agreed, adding, “The level of dialogue [from] the private equity community in India has increased, [which] shows a maturity of the market.”

However, they still have a way to go, Smith believes, comparing Indian GPs with those in other countries.

“On the dialogue with investors and being attuned to investors desires and needs, I’m aware of at least a couple of GPs that have very sporadic meetings, for example with their advisory boards here, which are pretty cursory and sometimes just associated with the AGM,” he said.

“That contrasts with advisory boards we serve on elsewhere that happen four times a year, or twice a year, where there is a real dialogue or conversation between the limited partners and the GP.”

Swamy agreed to an extent, saying, “There is some way for GPs to go in terms of advisory board interactions”, although adding that the level of active engagement has improved “dramatically” over recent years.