India’s Lighthouse makes $60m first close on Fund II, eyes early 2014 completion

Lighthouse's LP base is evolving from its first fund - a 2008 vintage vehicle that received $100 million in commitments - with more interest from larger institutions. The GP has already secured $25 million for India 2020 Fund II from International Finance Corporation (IFC), the World Bank's investment arm.

Investment strategy remains largely unchanged from Fund I. Lighthouse seeks significant minority stakes in small- and medium-sized enterprises (SMEs) with $5-100 million in revenue an annual growth in excess of 50%. It typically deploys $5-15 million per transaction.

Sectors of interest include healthcare, education, rural consumption and agribusiness - areas that are likely to benefit from and promote consumer demand and purchasing.

Fund I is now fully invested and is expected to generate a gross IRR of 30%. So far two portfolio companies have gone public and there has been one full exit and one partial exit. Two more exits are currently in the pipeline.

The political uncertainty in India stems from the general election scheduled for 2014 and investors' worries about potential volatility in the months running up to it.

The country's economy is already struggling and GDP growth, though unlikely to revisit the 2012 nadir of 3%, is now expected to reach 5.7% in 2013, down from previous projections of 6%. The rupee has lost 11.4% since the start of May and investors are skeptical about the government's ability to address the combined pressures of low growth, high inflation, a wide current account deficit, and currency depreciation.

The fall in the rupee has eroded PE fund performance - offshore funds are US dollar-denominated - but managers' concerns go much deeper.

"The frustrations for private equity in the last five years have been driven by a fundamental lack of government-led reforms enabling faster economic growth, particularly in terms of building capacity, such as infrastructure," Joe Bae, head of KKR Asia, told AVCJ last month.

India-focused PE funds raised $2 billion in 2012, well down on the 2009 peak of $9.4 billion, but many industry participants see this as a positive - only the more established groups are attracting capital so the crazy valuations of 2006-2008 are unlikely to be revisited.

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• Topics
• Fundraising
• South Asia
• India
• Fundraising
• Lighthouse Funds