Money raised by first-time fund managers, comprising mostly former top executives of global PE giants, has hit a high in 2018. Firsttime fund managers have raised $2.4 billion so far this year.
Devinjit Singh, former managing director of US-based PE major Carlyle Group, and Nitin Nayar, a former MD with Warburg Pincus, are among those who have launched their own funds in the last few months. They have mobilised a cumulative $450 million for their funds.
“Private equity investors have had good exits in the last two or three years,” says Arun Natarajan, CEO of data analytics startup Venture Intelligence, meaning they’ve made profits on investments in startups. “The momentum has given first-time fund managers confidence,” he says.
PE firms invested a record $8.2 billion across 158 deals during the quarter ended June 2018. That’s a 60% jump compared to the same period last year, according to data from Venture Intelligence.
The latest figures have catapulted total PE investments in the first half of 2018 to $12.4 billion (across 315 deals) — a figure similar to the one recorded in first half of 2017 (across 358 transactions). Incidentally, 2017 was the biggest ever year for PE investments in India, recording $23.5 billion across 660 deals.
The last time there was a surge in money raised by first-time fund managers in 2010, the ending was not a happy one. Only a handful of such fund managers, all veterans with several years of experience in PE firms, managed to keep their heads above water.
This time it is different, Natarajan says. “The depth of the market is much more now. Exits are on a far sounder footing. Domestic money is also available,” he says. Earlier, money was almost entirely mobilised from overseas players. Now, first-time fund managers are raising money from high networth individuals (HNIs) and family offices run by billionaire entrepreneurs such as Azim Premji and N R Narayanamurthy.
“Entrepreneurs now have to be cautious about leverage because of IBC (Insolvency and Bankruptcy Code),” says P R Sreenivasan, partner, Exponentia Capital, who is in the process of setting up a new alternative investment fund.
“Since banks are dealing with stressed assets, they are also in no rush to lend,” he says. “Entrepreneurs also don’t want to take too much leverage. To take advantage of a growing economy, businesses need equity (investments),” Srinivasan, a PE industry veteran with over two decades of experience, says.
There are also opportunities to invest in good businesses with bad balance sheets, he adds. “But the challenge is valuation. Only experienced partners (or fund managers) have the credibility to negotiate and structure attractive transactions,” he explains.
“The PE industry in India is still very young. India, being the fastest growing large economy in the world and having a buoyant entrepreneur ecosystem, will need billions of dollars of investment each year through private equity to achieve the growth aspirations,” says Shankar Narayanan, former co-head of Carlyle Asia Growth Partners and founder, Sanaka Capital Partners. He says investors are willing to back businesses at various stages of their journey — from angel, venture capital, growth capital, capital markets to strategic sale. “This is driving fund raising across various kinds of funds,” he says.
The fact that entrepreneurs are starting interesting businesses across sectors draws these investors. “Entrepreneurs are building unique solutions that not only address India-specific requirements but can be leveraged in other emerging markets,” he says. “Our focus would be to provide growth capital or medium-sized buyouts and back credible promoters to help them scale up their businesses and transform into larger and more profitable organisations,” Narayanan says.
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