India-dedicated Funds Attract Zero Investments In April Due To Covid-19

With no inflows reported in April, the first month of the second quarter of Calendar 2020, fund raising by India-dedicated funds may remain under pressure for the next 3-4 months at the very least, since most Limited Partners (LPs) are in a wait-and-watch mode as they take stock of their own investment portfolios.

Some clarity on global and domestic challenges is expected to emerge by then, enabling the LPs to take concrete steps. Industry representatives have said that they are expecting a significant uptick in PE investment activity in a couple of quarters, or possibly even earlier.

According to Indian Private Equity and Venture Capital Association (IVCA)-EY monthly PE/VC roundup, no fundraising was recorded in April. This is the first time since August 2016 that the experts witnessing a month in which zero India-dedicated funds have been raised. There has been a precipitous decline in India-dedicated mop ups, since the $742 million that was raised in January 2020. April 2019 had recorded fundraises worth $682 million.

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Venture Intelligence data stated that during the second quarter of Calendar 2020, so far four funds worth $360 million have been launched. In comparison, during the first quarter of 2020, three funds worth $2,148 million were launched. However, the funds raised during the second quarter stood at nil, while during the first quarter, eight funds raised a total of $784 million. During the first quarter of 2019, nine funds had raised $3,386 million while in the second quarter, $795 million was raised.

Srini Sriniwasan, managing director, Kotak Investment Advisors Ltd and IVCA's Executive Committee Member said international LPs have a choice of markets to invest in and covid-19 is a blackswan event. Naturally, everyone would revisit the drawing board. Going forward, capital flows will also be significantly impacted due to geopolitical realignments currently underway now. Also, large sources of capital were also dependant on oil prices which have been impacted. So it’s early days to conclude any trend.

On the sectors which may attract investors, he said the obvious ones are digital infra and service providers, domestic consumption-led themes, healthcare and core sectors where he expects Government spending to positively impact demand.

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"We had created a bespoke Platform, called Optimus for our UHNI clients. this platform enables our clients to participate with the best of portfolio managers and at the same time choose their risk adjusted asset allocation model. This unique offering which was launched late December 2019, has been able to raise approximately Rs 1000 crs in the period ended April 30, 2020. This is a remarkable achievement in such challenging market conditions and vindicates the 'keep it simple and disciplined' approach to asset allocation," said Sriniwasan.

Vivek Soni, partner and national leader – Private Equity Services at EY India said that he expects fund raising by India dedicated funds to remain under pressure for the next 3-4 months at the very least.

Most LP’s are in wait and watch mode as they take stock of their own investment portfolios. Hopefully, some clarity on global as well as domestic challenges will emerge by then, enabling LP’s to take concrete steps.

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Globally, LP’s in general are shy to commit to new funds and are expected to remain so till uncertainty reduces materially. GP’s on the other hand, are flush with funds with record levels of dry powder. It is expecting significant uptick in PE investment activity in a couple of quarters, or possibly even earlier. A lot depends on the successful containment of the virus, and whether there will be a second wave etc., he added.

Covid-19 has dislocated the fixed income and equity portfolio’s of most LP’s and has caused significant upheaval in the real estate and infrastructure asset classes, which is where a lot of LP’s have significant exposure. In a way, it has caused a perfect storm in the investment world, one which has caused damage across deal strategies, asset classes, investment types as well as geographies. LP’s are taking stock of their exposures, estimating losses, existing commitments, projecting distributions and are expected to wait a bit before they start making fresh commitments to new funds.

EY expects the fund raising activity by India-focused General Partners (GP) to start meaningfully after 3-4 months, and success will most likely be tasted first by experienced fund managers with established track record of delivering returns to LP’s and those that have more than 2 funds under their belt.

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Currently, GP’s are bullish on sectors including pharma, healthcare, bio-tech, fin-tech, technology, SaaS, Ed tech, chemicals, packaging, consumer goods in the essentials space and essential services / infrastructure like renewable energy, roads etc.

"As and when lockdown related challenges ease and normalcy begins to return, we hope to see more sectors being added to this list," said Soni.