India PE primed for a pay-off - AVCJ Forum

Steve Byrom, head of private equity at Australia's Future Fund, said that the industry was previously held back by overenthusiastic LP commitments in the previous decade to newcomer GPs. Those investments caused some difficulty for those LPs, with capital tied up in funds that have only recently started to pay off, and some not performing as expected.

"We've held back in putting money into the market, one, while we wait for that capital overhang to clear itself, but two, to allow us to see the actual winners start emerging out of this industry. And I think we're beginning to see that now," said Byrom.

M.K. Sinha, CEO of IDFC Alternatives, agreed, characterizing the 2004-2008 time frame for investors as one of "rose-tinted glasses."

"There were some GPs who were aware of the risks, and would tell others about it, but sometimes the LPs would overlook that, saying, 'No, that's fine, we see that everywhere else,'" Sinha said. "But it was a real risk in the Indian market."

He added that GPs have had to learn to be more cautious, and to look at the India market from a long-term rather than an opportunistic perspective. The market is best understood in three-year periods, Sinha explained, and GPs should be aware of the possibility for disruption during transitions between these periods.

Another factor in building a successful PE industry in India has been improving GPs' ability to find deal opportunities. Sanjay Kukreja, managing director at ChrysCapital, said the firm has taken steps to encourage its staff to build networks that can lead to investments, rather than focusing only on the success of the deals.

"We don't want to incentivize anybody on deals done," said Kukreja. "Rather, we incentivize people on access, on how many deals have you actualy brought to the table, even ones that the investment committee has said no to."

One continuing difficulty for the industry is the lack of exit opportunities. Participants identified several contributing factors to this issue, including the slowdown of capital markets after the global financial crisis, or more recently the reluctance of some GPs to part with investments without a prospect of replacing them.

"In all of the 42 investments that we've made so far, we have not had the benefit of taking the exit door on an opportunistic basis. Exiting on a truly private equity basis is difficult," said Sinha.

The AVCJ India forum runs from 1-2 December. For more information, visit www.avcjindia.com.

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• Topics
• South Asia
• LPs
• GPs
• Exits
• AVCJ Events
• India
• GPs
• LPs
• ChrysCapital Management
• Future Fund
• IDFC Private Equity
• Tata Capital