Secondary Market for Private Equity Developing in India
Sanat Vallikappen, Mint
April 2009
Investors in private equity funds, known as limited partners or LPs, are sensing opportunities to buy-out the positions or commitments to private equity managers from other LPs that want to limit their exposure to private equity, or do not have the money to meet their so-called unfunded commitments.
In industry parlance, such deals are known as secondaries and private equity managers are referred to as general partners or GPs.
LPs are excited about the opportunities as deals are coming at steep discounts. Such deals have been struck frequently in the US and Europe but they are new in the Indian context.
Rahim Penangwala, head of private equity, India, at LGT Capital Partners (Asia-Pacific) Ltd, a Switzerland-based fund of funds that manages at least US$18 billion (about Rs90,000 crore) in hedge fund and private equity assets, said his firm was offered two such deals at very “attractive prices” last week. He, however, did not name the GPs looking for such deals.
“We’re seeing (price) ranges between 50-70 cents to a dollar, which is pretty attractive,” Penangwala said at a conference organised by the Asian Venture Capital Journal, recently in Mumbai.
LPs are betting on a further price correction; Penangwala himself has witnessed at least one non-India fund going at 20 cents to a dollar.
“We’ll be concentrating a lot on secondaries in India this year. If we liked the manager the last year or the year before, we’re seeing the same managers at 40-50% discounts. So now we love them. The balance has shifted towards secondaries,” said Penangwala, whose fund has $200 million committed to India across eight funds. LGT entered the funds when the managers were initially raising them.
A GP gets a commitment of a certain amount from his limited partners while raising funds and this commitment is drawn down as and when the GP invests into a company. LPs include pension funds, endowments, family offices and funds of funds, which allocate a certain portion of their capital to private equity managers.
