Setting boundaries

As private equity reaches a critical mass in Asia, the role of national and regional private equity associations has become more important, writes Siddharth Poddar.

Last week, the Indian Venture Capital & Private Equity Association (IVCA) said it will draft self-regulatory guidelines for the Indian private equity industry. Thus far, private equity investors in the country have gone about their business solely within the parameters set by the government.

Key components of the guidelines being discussed pertain to reporting and valuation on the part of fund managers, Ranjit Shastri, the executive director of IVCA, told sister publication PEI Asia. Corporate governance and the interaction between private equity funds and their portfolio companies are also subjects being discussed, he added.

The number of players in the Indian private equity industry has grown steadily over the last few years, and as the space becomes more crowded, there is a need for standardisation, Shastri said.

How successful the IVCA will be in its endeavour is likely to be a function of how serious the private equity firms investing in the country are about preserving the reputation of their trade and their activities.

India is making a move in the right direction. The question is whether other industry bodies in the region will consider implementing such guidelines. Private equity has grown rapidly in the region as a whole – all the global private equity bigwigs have a presence in the region and Asian investments no longer form an insubstantial portion of LPs’ portfolios.

As the industry reaches a critical mass, some degree of standardisation is essential. More importantly, initiatives such as this will result in more authoritative industry bodies which will perhaps be influential enough to lobby governments effectively.

There has been some degree of activity at the regional level as well. The Singapore Venture Capital Association (SVCA) and Singapore Management University (SMU) are planning to set up a pan-Asian private equity institute in the city-state. The body aims to provide research and data, develop teaching capacity and to engage with the industry. “We will be the mouthpiece of the industry,” said Annie Koh, the dean of executive and professional education at SMU.

Kelvin Chan, senior vice president at Partners Group and the former chairman of the SVCA, said “it is about time we had such an institute to further harmonise standards and practices across Asia, as well as educate the regulators and facilitate the growth of more Asian limited partners or fund of funds players”.

He added that potential partners to the initiative will include “all the venture capital and private equity associations in the region”.

These are good signs for the industry. There is still a long way to go before Asia has industry associations as influential as the French Private Equity Association, the British Venture Capital Association or the European Private Equity & Venture Capital Association, but it is a start.

In Asia, there has always been an emphasis on consensus-building and on the importance of having everyone on board. People like Shastri do no underestimate the enormity of the tasks that lay ahead, but remain confident that the process is on the right track.

At a time when most of the financial world is faced with criticism for their roles in the global economic fallout, it is perhaps not a bad idea for private equity players in Asia to demonstrate an interest in transparency and self-discipline.