India’s Lighthouse closes third fund as market heats up

The firm has raised $230m for India 2020 Fund III which received backing from investors including the International Finance Corporation, CDC Group and DEG.

Lighthouse, a Mumbai-headquartered mid-market firm, has held the final close on its third India fund almost a year later than expected.

The firm has raised around $230 million for India 2020 Fund III, according to a statement. It also has additional capital for co-investments.

Development finance institutions provided one-third of the capital, with traditional institutions and family offices each accounting for an additional one-third respectively, founding partner Mukund Krishnaswami told Private Equity International. Asia-Pacific investors accounted for around 15 percent of commitments, with the remainder split evenly between the US and Europe.

Lighthouse had aimed to close Fund III in H1 2018, Krishnaswami told PEI in November 2017. The firm delayed the final close to accommodate two limited partners that wanted their commitments to fall within a 2019 bucket, he said on Tuesday. It had a 95 percent re-up rate and received commitments from institutions include the International Finance Corporation, CDC Group and DEG.

India’s private equity market is heating up. Firms completed at least $5.8 billion of private equity, infrastructure and real assets buyouts last year, compared with $5.4 billion in the previous four years combined, according to EMPEA data. Blackstone president Jonathan Gray is a “big believer” in India and the firm will be accelerating its activity there, he wrote in The Economic Times in February.

Krishnaswami said that foreign investors may be concerned at the high prices for some high-quality businesses.

“The stuff that’s expensive will look expensive for one or two quarters, but then it will look cheap forever. And sometimes the stuff that looks cheap up front can look really expensive when it doesn’t work.”

Fund III has access to additional co-investment firepower, from which it has already drawn $20 million, Krishnaswami added. The vehicle is roughly one-third deployed across four deals and is expected to target 10 to 12 in total.

Lighthouse targets minority growth stakes of around 10 percent to 30 percent in consumption-related businesses, including mattress producer Duroflex and footwear brand Aqualite. Its previous fund, the fully invested India 2020 Fund II, closed on its $135 million target in 2014, according to PEI data.

“It’s really hard to benchmark but the reality is if an investor is giving us a dollar we would hope to give them back three or four dollars over five to 10 years,” Krishnaswami said, declining to disclose specific return expectations or past fund performance.

“There’s always something that can go wrong, like currency issues, but you’ve got real GDP growth here of 7 percent and with inflation you’ve got GDP growth of 12 percent, so even if you do nothing and just buy a portfolio, that will double over six years.”