India becomes an investment hub for sovereign wealth, pension funds

Photo: Mint

Sovereign wealth funds are piling into India, buying stakes in everything from airports to renewable energy, attracted by political stability, a growing middle class and reforms making it more enticing for foreigners to invest.

Wealth and state pension funds are expanding their horizons to private markets, to complement an existing focus on stocks and bonds.

“India is popular with sovereign wealth funds,” said Tihir Sarkar, London-based partner at Cleary Gottlieb, which counts several prominent sovereign funds as clients.

“Almost every jurisdiction in the western world is raising the bar for entry for foreign investors but in India it’s the other way round. There’s also the attraction of the demographics and a lot of assets that sovereign funds like, such as infrastructure, where there’s a huge appetite for foreign funding.”

Indian Prime Minister Narendra Modi’s election win last month consolidated his Hindu nationalist party’s power base and is expected to stimulate further foreign investment.

Foreign institutional investor flows into Indian equities are $11 billion year-to-date, surpassing the total annual tally in each of the four previous years and setting 2019 on course for the highest annual inflows since 2012. India’s benchmark BSE index has soared nearly 10% year-to-date.

“The rapid rise of an educated middle class offers enormous opportunities for the deployment of long-term capital, the kind that sovereign wealth funds are ideally suited to provide,” said Ravi Menon, chief executive officer of HSBC Asset Management India.

The new China 

The attention sovereign funds are giving India is like that they have paid to China, now clouded by a trade war with the United States, said a banker specialising in institutional investors. In the public markets, funds were focused on public equity and fixed income, he said. In the private market, momentum is also building.

Private equity deal activity in India surged to $19 billion in 2018, the highest level in at least a decade, according to PitchBook data. Sovereign wealth funds and pension funds participated in about two-thirds of that amount.

Among recent deals, Singapore’s GIC sovereign wealth fund and the Abu Dhabi Investment Authority (ADIA) this month agreed to make a further investment of $495 million in renewable energy firm Greenko Energy Holdings, which has wind, solar and hydro projects.

India is widening its use of solar and wind energy to help reduce its reliance on fossil fuels.

In April, ADIA and India’s National Investment & Infrastructure Fund (NIIF) agreed to buy a 49% stake in the airport unit of Indian conglomerate GVK Power & Infrastructure.

Another wealth fund is in talks on an infrastructure investment, while Canadian pension funds are seeking similar deals, said a source familiar with the matter.

Canada Pension Plan Investment Board and GIC earlier this year participated in a $145.8 million buyout of Oakridge International School, an operator of schools in India.

ADIA, the world’s third-biggest sovereign wealth fund, which has been investing in Indian equities and fixed income for years, has broadened its focus to include asset classes such as infrastructure, real estate and private equities, said people familiar with ADIA’s thinking.

Its increased interest in India is driven by the country’s strong growth potential, positive demographics and continued economic development, the people said. More than half of India’s 1.3 billion population is aged under 25.

The push comes as India and the United Arab Emirates seek to strengthen economic and trade ties.

Reform Push 

Regulatory reforms are also bolstering sentiment and drawing in wealth funds.

Indian-based fund managers were from this year licensed to manage foreigners’ portfolio holdings in the country, where previously such assets had to be managed outside India.

Prashant Khemka, founder of White Oak Capital Management which advises London-listed Ashoka India Equity Investment Trust, said that change had helped kick-start the onshore fund management industry for foreign-sourced funds.

“This could be looked back on as an inflection point in the growth of the Indian fund management business,” said Khemka, one of four fund managers to gain such an approval so far. Institutional names, including sovereign wealth funds and pension funds, account for around two-thirds of his clients.

Bankruptcy resolution rules introduced in 2016 helped pave the way for ADIA’s $500 million investment earlier this year in a distressed debt fund.

The investment was seen as an effort to launch a secondary market in India’s mountain of distressed debt and help ease the burden on local banks.

But some say more reforms are needed.

A source close to several wealth and pension funds said many would like to see the government further overhaul tax rules, building upon a new goods and services tax that is credited with helping cut red tape, and undertake land and labour reforms.

Reuters

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.