Capital for PE funds in India seen drying up as LPs turn cautious

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Private equity (PE) firms in India, which were in the fundraising mode before the COVID-19 outbreak, have been struggling to reach their targets as investors, also known as limited partners (LPs), have chosen to wait out the uncertainty period before deploying more capital to fund managers.

PE funds raise money from various global institutional investors such as pension funds, sovereign wealth funds, insurance companies as well as family offices.

“Overall, the PE industry is adopting a measured approach when it comes to fundraising or new investments,” said Shagoofa Rashid Khan, partner and head – funds, investment and advisory at the law firm, Cyril Amarchand Mangaldas.

“Funds that were about to hit their final close in the coming months have gone back to their investors and sought an extension for covid-19 reasons. For others, where the commitment period is underway, the sunset date for expiry of LP commitment is also being sought to be extended,” she added.

The reason for this cautious approach of investors is the turmoil they have witnessed in their public market portfolios and the resulting change in the proportion of assets under management (AUM) in public and private investments in their portfolio.

These investors generally have a hard cap on the portion of their capital that they can allocate to private equity. With public portfolios contracting sharply, their allocation to private equity now seems larger in proportion to overall portfolios, and this restricts their headroom to deploy fresh capital towards PE.

“Fresh commitments from LPs are naturally very difficult as diligence is difficult in these times. Where a soft close of a fund had happened, LPs are requesting for an extension for a hard close until the situation improves,” added Sinha.

LPs such as pension funds and sovereign wealth funds are also adopting a cautious approach due to government mandates to focus on their domestic markets rather than deploy capital elsewhere in times of global macroeconomic uncertainties.

Large pensions and sovereign funds such as Canada Pension Plan Investment Board, Caisse de dépôt et placement du Québec (CDPQ) and Singapore’s state investor GIC are investors in a bunch of Indian PE funds.

“In view of severe dislocation in the public equity and bond markets, high-net-worth individuals and family offices may also reconsider their allocation towards alternative assets,” Mimani added.

Swaraj Singh Dhanjal contributed to the story.

This article was first published on livemint.com.

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.