India Value Fund reduces fund size by 15%

"We want to do things right - to serve all the stakeholders underpinning our success today, both LPs and the portfolio companies," said Vishal Nevatia (pictured), managing partner at IVFA. "A slightly smaller fund will afford us the time and resource to invest, build our portfolio companies and divest in the most optimal fashion."

IVFA closed its fourth fund at $700 million in July 2009 after barely five months in the market. The LP base includes leading sovereign wealth funds, North American pension funds, foundations and endowments. The vehicle represented a substantial step up from the GP's 2006 vintage $400 million third fund, which was itself more than twice the size of Fund II.

As IVFA began its investment phase the Indian economy was rebounding and this resulted in a substantial increase in valuations in 2010 and 2011. Competition among private equity firms was also on the rise: more than $31 billion was raised for India-focused funds between 2006 and 2008 and these managers were under pressure to deploy.

As a result, IVFA held back, committing only $100 million during the first two years of its investment period. Even if the environment turns significantly - unrealistic valuations were still responsible for the GP walking away from seven deals so far in 2012 - it would be difficult to commit $625 million before the end of 2014, when the five-year investment phase comes to an end.

IVFA decided to cut the fund size rather than move up from its $30-60 million equity check sweet spot. It has only done one PIPE deal in its 13 years of existence and 80% of capital under management is deployed in companies where the GP has a controlling position.

"Even though we were running out of time, we took the harder route of sticking by our beliefs and integrity, and walking away from deals that were either too expensive or gave us reasons beyond pricing to not close," Nevatia said. He added that IVFA continues to invest in its team, hiring eight senior investment professionals in the last year.

Although it is rare for Asian GPs to trim their fund sizes, IVFA's move is not unprecedented. In 2009, The Carlyle Group announced that its second Japan buyout fund, which closed at JPY215.6 billion ($860 million) three years earlier, would be cut by JPY50 billion due to the sluggish post-financial crisis deal-making environment.

In 2010, India-focused ChrysCapital Partners, citing limited investment opportunities over the previous year and the need to sustain an IRR of 15% or more, returned $300 million of its $1.26 billion fifth fund to investors.

• Tweet  
• Facebook  
• LinkedIn  
• Google plus  
• Save this article  
• Send to  

• Topics
• Fundraising
• South Asia
• GPs
• Fundraising
• India
• India Value Fund Advisors
• GPs