Limited Partners bet big on India

PRIVATE EQUITY WATCH

Reena Zachariah / Mumbai December 18, 2007

The India growth story has not just lured the big Wall Street banks and private equity funds.

Now, Limited Partners (funds that are known to invest in private equity funds) are lining up big-ticket investments into India-specific PEs, buoyed by multiple returns from the Indian markets.

A recent Emerging Markets Private Equity Association (EMPEA) LP survey said: �LPs� strong overall preference for country funds in Asia was driven largely by interest for country funds in India and China. The cited drivers for increasing interest in EMPE included better performance and risk-return profiles and increased market maturity and more credible track records.�

In India, the risk-return is expected to be between 25- 40 per cent per annum compared with 15 per cent from developed economies such as the US and western Europe.

Early this month, in one of the private equity conferences, some of the LPs expected that Bric countries-focused private equity funds will be delivering substantially higher returns in five years.

However in India, one of the largest LPs is the insurance behemoth, Life Insurance Corporation of India, that has been investing in reputed private equity funds since 2000. But it has been majorly active only in the recent years.

LIC has invested less than 0.50 per cent of its total assets under management (about Rs 5,00,000 crore) into private equity funds (Rs 2,500 crore).

�When we invested in the beginning, we have got very good returns out of it. Since the valuations are very high now, we will wait and watch before making further investments,� said an LIC official.

Some of the LPs are global pension funds, endowment funds, university funds and family offices. Since these funds manage billion of dollars globally, they do not have the time to focus on smaller funds and so they usually prefer to invest into fund of funds or directly into private equity funds.

Just like PE funds, these LPs also play a very active role in the funds that they invest into.

Bala Deshpande of ICICI Ventures, one of the country�s largest private equity firms with funds under management in excess of $2 billion, said: �One of the most important roles they play is give us a global perspective as they tend to see an underlying trend going forward such as the verticals we should look at investing. Safety of the return and not just returns is a critical factor for LPs to decide.�

LPs are on the supervisory board of PE funds and usually meet at least once a year. They also introduce the GPs (General Partners are the ones who actively manage the fund) to other LPs and to some strategic partners if they are looking out for an M&A.