Private Equity fund raising in India

As the market sentiments have improved, various private equity firms have either announced or have started raising funds in India. Investing in a PE fund and becoming limited partners (LP) is still not popular in India primarily owing to PE industry itself in infancy in India.

The various problems in raising PE fund in India includes -

• Ticket size - Relatively high ticket size and initial commitment needed by PE funds
• Lock-in period - Indian investors are not used to lock-in large amount for long time periods (typically PE funds demand 5-7 years of lock-in else high penalties are imposed)
• Understanding - OR Lack of understanding about working and operations of PE funds
• Transparency and reporting norms - As an industry characteristic, reporting and accounting norms are not always clear which fuels investor's suspicion
• Brand name - Investors are understandably more comfortable investing with known and old funds OR in funds floated by banks

Although it is understandable that known names and Indian players (read banks) may always raise funds easily (even if the investors have limited understanding), the worrying fact is that the funds are not trying to educate the investors (this is from my own experience). Funds are trying to tie-up with the various market intermediaries to leverage their network; however even the market intermediaries and relationship managers have limited knowledge. Sometimes they even treat the investment opportunity like another mutual fund offering (not helped by few funds asking for upfront fees and exit loads).

According to me, it will take some time before Indian investors seriously start considering becoming LPs in PE funds. Till that time, we may witness more successful closures from banks, big business houses and established players. Lesser known players may have to raise the hurdle rate, reduce the minimum ticket size and may have to improve the reporting and transparency norms.