Sarika Malhotra
With allocations shrinking, 2012 did not go well for the
private equity industry globally. The latest annual data by Emerging Markets Private Equity Association indicates that
India's fund raising, in particular, was at its lowest since 2005, at $2.084 billion.
On the other hand, even as there was a decline in fund raising by China compared to its 2011 rally, it still clocked in an impressive $10.82 billion. Brazil, too, managed a decent show, at $2.617 billion. For an industry competing hard with China and Brazil, part of the BRIC bloc, for every dollar and vying to grab investments by limited partners (LPs) - investors in funds - the competition may get even stiffer.
Non-BRIC market funds raised $8.3 billion, the highest number to date. Deal volumes rose notably in Chile, Malaysia, Morocco and United Arab Emirates. Southeast Asia raised the most capital since 2007, with 13 funds pulling in $1.4 billion.
Industry insiders have confirmed that at least a dozen global LPs - primarily global funds of funds with significant emerging market mandates, as well as a few large and experienced pension plans - are shifting focus and investments away from India. The fallout is evident. Henderson Equity Partners was among a string of global funds to shelve India plans in 2012. The private equity arm of fund manger Henderson Global Investors shelved plans to raise a $200 million India-dedicated fund.
| PE Capital Raised |
Country | 2005 | 2006 | 2007 | 2008 | 2009 | 2010 | 2011 | 2012 |
Brazil | 0.15 | 2.09 | 2.51 | 3.58 | 0.40 | 1.07 | 7.07 | 2.61 |
China | 2.24 | 4.27 | 3.89 | 14.46 | 6.61 | 7.50 | 16.61 | 10.82 |
India | 2.74 | 2.88 | 4.56 | 7.71 | 3.99 | 3.26 | 2.73 | 2.08 |
All figures in billion dollars
Note: Country-specific fundraising totals only capture single-country funds, not country allocations or targets from regional or global funds.
(Source: EMPA) |
On the contrary, the rally in fund raising in Brazil and China in 2011 speaks for itself. Brazil almost made a wild card entry in the fund race with a staggering six-fold jump, from $1.07 billion in 2010 to $7.07 billion in 2011, in which just six funds raised the record-breaking capital. For the fourth year in a row, the South American nation saw the largest influx of new investors. China more than doubled its kitty with a whopping 121 per cent increase, from $7.509 billion in 2010 to $16.616 billion in 2011. On the other hand, India, seems to be slipping. In 2011, it managed $2.7 billion, well below the 2008 peak of $7.7 billion.
If one takes 2005 as the benchmark year to compare
fund-raising in India and China, when both these nations clocked similar amounts (China at $2.243 billion and India at $2.741 billion), China has consistently done well. The only exception was 2007, when India overtook China with $4.56 billion compared to $3.89 billion for China.
While China has overtaken India, the fund raising gap, too, has widened like never before. In 2008, China raised $14.46 billion compared to $7.71 billion for India. As global allocations shrunk in the wake of the recession in 2009 and 2010, China still managed to raise more funds than India. But the real differentiator is 2011, when China had a mammoth fund raising run of $16.61 billion compared to $2.73 billion by India.
Special: India's best PE and VC funds The investor perception is that in the 1980s and early 1990s, when China needed foreign capital, it went all out create enabling infrastructure, whereas India has been less proactive in its approach. This is translating into declining interest by international investors. The 2012 Global Limited Partners Survey by US-based Emerging Markets Private Equity Association also highlights concerns about macro-level challenges in select markets, particularly political and regulatory risks, faced by new entrants in the market. For India, 20 per cent of LPs voiced concerns about challenging regulatory/tax issues, and another 20 per cent cited political risks as a critical issue. On the other hand, for Brazil, only seven per cent of LPs cited political risks as a cause of concern. None found the challenging regulatory/tax issues an impediment.
A majority of limited partners are not only upping their commitments to Brazil and China but also consistently betting on future returns from these markets. These partners have the highest net returns expectations of 16 per cent or more, by current exposure, from Chinese funds. As per EMPA data, as many as 90 per cent of limited partners expect at least 16 per cent returns from China, followed by Brazil at 73 per cent. India is in the fifth position, with 63 per cent of LPs betting on a 16 per cent-plus return.
In market attractiveness parameters, too, India has slipped from number two in 2008 to number six in 2012. And it is evident, with industry veterans shelving or halting plans to raise funds in the prevailing environment. Rajesh Khanna, former Warburg Pincus big-wig , has shelved fund-raising plans for his maiden venture, Arka Capital. With fund raising for Indian PE funds losing momentum, and the India share shrinking, it is critical for India to get its act together, as it will be crucial not only for future fund raising but also for funds that are on the road and looking for closure.
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