LPs warn of adverse ESG impact in India - AVCJ Forum

“India is plagued with ESG risk factors, which I think have the potential to work against allocations to India as these factors increasingly weigh on global portfolio construction,” said Joe Bryant, the investment director at UCLA Investment, which manages a $3 billion endowment fund.

In particular, a months-long protest movement that has its roots in racial discrimination and police brutality in the US has accelerated conversations on the importance of embracing diversity. “In the US, university endowments such as UCLA are coming under a lot of pressure from our constituents on a lack of diversity among GPs,” she added.  

Bryant noted that Indian GPs may compare favorably for now because they have BIPOC (black, indigenous or people of color) individuals in senior positions. However, she stressed that managers must ask questions about their approach to diversity.

There have been some positive signs in terms of gender diversity. In April, Renuka Ramnath became the first female chair of the Indian Venture Capital Association. Meanwhile, Nupur Garg, regional lead for South Asia as the International Finance Corporation (IFC), set up Women in India Private Equity (WinPE), a non-profit platform that promotes gender diversity in India’s alternative investment community, earlier in February.

Separately, Harsh Singhal, an India-based managing director at Canadian pension fund CDPQ, said environmental considerations will increasingly influence both allocations and the LP’s view on good portfolio management. CDPQ has committed to establishing a carbon-neutral portfolio by 2050.  

“Any investment which our GPs are making will looked at very, very seriously in terms of the carbon footprint,” said Shah.  

On governance risks, Bryant highlighted rules introduced earlier in the year that allow weighted voting rights, a lack of transparency, corruption, and poor working conditions. “You've got a prevalence of promoter risk ... that’s mitigated a bit by the tech [start-ups] - the cap tables and new founders that we're seeing - partnering with foreign capital but you still have issues,” she added. 

Broadly, LPs remain positive on India but are mindful of risk to their portfolios due to an economic downturn induced by COVID-19. They called upon the Indian private equity community to liaise with the regulators to smooth paths to exit. Failing to do so would mean that Indian GPs have to promise a premium for illiquidity, currency and equity risk. 

Still, they expect that good GPs will be able to navigate the crisis. Sunil Mishra, a partner at Adams Street Partners, said the current environment could present an opportunity for Indian managers to showcase their progress as investment outfits.

“Even if the growth slows down, the market is maturing ... and that will provide a much deeper set of opportunities and a different set of strategies and managers who are focused on those strategies,” he said.

“In India, the macro story is always beautiful and attractive but we need high-quality fund managers who are able to extract the potential of the economy and deliver high-quality returns. I think that's where the rubber hits the road.”

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• Topics
• South Asia
• Fundraising
• LPs
• GPs
• India
• Adams Street Partners
• AVCJ Events
• Caisse de depot et placement du Quebec (CDPQ)
• UCLA Investment Company
• ESG