Domestic investors emerge show-stoppers in Indian PE party

By Shrija Agrawal (VCCircle.com)

A key driver to the domestic LP story is the deepening of the secondary PE market.

Indian private equity fund managers are making less international trips these days, instead they are busy doing fund-raising roadshows right in their backyard. If the recent trend is any indication, the domestic limited partners (LP) are emerging as a significant source of capital in Indian private equity.

At least a dozen Indian funds such as ICICI Ventures, Reliance Private Equity, Renuka Ramnath-floated Multiples, Milestone Religare Investment Advisors Pvt Ltd, IL&FS Investment Managers Ltd, Kotak Realty Fund, Tata Capital and Piramal real estate fund are on road to raise domestic capital.

ICICI Venture has tapped the domestic capital to raise $200-million as the first tranche of its $500-million fund. The firm is expected to announce the first close by end October, and will go to offshore markets for the remaining part of the fund. “The liquidity in the market is good. Domestic money is becoming a predominant source,” said Vishakha Mulye, MD & CEO, ICICI ventures. With liquidity channels drying up in the West, domestic money (banks, institutions and high networth individuals) is quickly emerging as a sizeable pool of capital to power the Indian private equity gravy train.

Consider the rise of the domestic LP class in the Indian PE landscape: Reliance PE is expecting a first close of Rs 1,500 crore by the end of this quarter through funds raised from domestic financial institutions and HNIs. The ADAG-sponsored fund vehicle is targeting a corpus of Rs 3,000 crore. Aditya Birla Private equity, the PE arm of Aditya Birla Group, is looking at a first close of its $250-million mid-market PE fund only from domestic LPs. TVS Capital Funds was the first major independent private equity fund to raise a Rs 600-crore all-rupee private equity fund. The fund – promoted by the Chennai based TVS Group and Shriram Transport Finance group – raised the fund in 2008.

“The interest received from the domestic LPs for the fund has been terrific,” says Bharat Banka, MD & CEO, Aditya Birla PE.

Domestic LPs comprise of financial institutions like banks, insurance companies, pension funds and HNIs (high networth individuals). The biggest domestic LPs in India are General Insurance Corporation, Life Insurance Corporation and State Bank of India and UTI. These institutions are allowed to invest a small percentage of their assets under management in these instruments. The HNI class is also gaining traction with placement agents like Centrum Capital and placement divisions of banks like ICICI Bank actively reaching out to them.

“There are about 14-15 funds targeting to raise money from domestic institutions and HNIs,” says Munesh Khanna, Managing Director, Centrum Capital. Ramesh Venkat, CEO of Reliance Equity Advisors, told VCCircle in a recent interview. “Domestic institutions will emerge as a major limited partner class in times to come,” he says.