Fund focus: IVFA sees slow turn in LPs' India sentiment

India Value Fund Advisors (IVFA) has become the first to complete its fundraising, announcing a final close for Indium V last week at the hard cap of $700 million. The process took less than eight months and demand exceeded $800 million, well beyond the $600 million target.

However, Vishal Nevatia, managing partner at IVFA, is wary of exaggerating the optimism. "It has gone from negative to slightly positive," he says. "A lot of LPs said no to us because they aren't ready to invest in India, due to concerns about the macroeconomic situation or past PE returns. It will take another year of better performance for the situation to really improve."

There are 25 LPs in IVFA's fifth fund, with existing backers accounting for 50% of the LP base and 60% of the capital commitments. New investors are said to include Australia's Future Fund and Canada Pension Plan Investment Board. Fund-of-funds featured prominently in Fund IV, which closed in 2009 when many LPs were still adjusting to the global financial crisis. This has abated in the new vehicle, with pension funds and sovereign wealth funds contributing most of the capital.

Fund IV was also $700 million in size, but IVFA handed back $100 million to LPs because the pace of investment was slower than expected: in the first three years, only about 10% of the corpus was deployed. As such, the portfolio is too immature to be generating much in the way of exits.

Most of the $700-800 million that IVFA expects to have distributed by the end of 2015 is from Fund III. Nevatia identifies Mahindra Castings, Atria Convergence Technologies and DM Healthcare as big winners - each is expected to deliver a return of 5x or more - but also stresses the firm's track record in minimizing losses. "We have lost money on only one transaction to date; it was in Fund I and it was only $1 million," he says.

Part of the reason for this is IVFA's focus on majority transactions, which account for 70-80% of investments. The strategy is unchanged for Fund V. On a sector basis, IT services is the only addition, joining the core areas of healthcare, financial services and consumer.

IVFA targets profitable business with revenues of $25-100 million that need to be institutionalized. Nevatia estimates that three quarters of entrepreneurs struggle to manage this transition, so IVFA creates a partnership between the entrepreneur, who retains 20-30%, a professional management team brought in by IVFA, which has 20-30%, and then IVFA with 50-60%.

"Typically, the entrepreneur becomes non-executive chairman, and continues to be the face of the business," he explains. "He plays a supporting role as the professional CEO and IVFA take charge of the business going forward."

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