Commitments and funds raised by Alternative Investment Funds (AIFs) increased by nearly eight times in the first quarter of this year, compared with the same period a year ago, as infrastructure-focused funds got back into favour with limited partners (or LPs, investors in venture capital and private equity funds).
During the quarter, investments made by AIFs also rose by nearly nine times, according to SEBI’s (Securities and Exchange Board of India) latest data relating to activities of AIFs, released on May 5.
“These numbers go against the general sense of dampened sentiments that prevail in the investment industry today,” said Sanjeev Krishnan, executive director of PricewaterhouseCoopers (PwC). “The trend is, however, very pleasing as it indicates that somebody has faith in the ecosystem and believes that investment cycle will revive and is gearing up for it,” Krishnan said.
For the quarter ending March 31, 2014, commitments worth Rs 13,465.34 crore were raised, compared with commitments worth just Rs 1,544.09 a year ago. Commitments by LPs are important as they indicate these investors’ confidence in a given geography in terms of its growth prospects as well as in the track record of fund managers. Furthermore, it is very rare for such investors to back out of a financial commitment to a fund manager.
The first quarter of this year saw fund raising of Rs 4569.05 crore by AIFs, compared with funds raised to the tune of Rs 529.53 crore in March quarter, 2013. The latest quarter also saw investments worth Rs 3348.29 crore, compared with deployment of Rs 361.77 crore in March, 2013.
“It indicates that LPs are sticking to their commitments and are confident about the long term prospects of India. While there was a bit of disengagement by a few LPs in the last two years, India remains an attractive growth story,” said Bala Deshpande, senior managing director, New Enterprise Associates (India) Pvt Ltd, a Mumbai based investment firm.
Amongst the category 1 funds, which include infrastructure, social venture, venture capital and SME funds, it was the infrastructure funds that received the highest commitments. Infrastructure funds got pledge of Rs 5619.25 crore and saw an actual fund raise of Rs 607.88 crore. In the first quarter of 2013, infrastructure funds had raised commitments of Rs 299 crore, with zilch actual corpus raise.
Experts say investors’ confidence, reflected through commitments, also indicates that India’s general elections and hopes for a stable new government are impacting investors’ mood already in a positive way.
“There has been a renewal in interest for infrastructure funds as there are quite a few assets available to buy into,” said Harish HV, partner at accounting and advisory firm Grant Thornton. “There is a feeling that things will begin to roll now with better decision making in future….hopefully we will get a stable government,” he said.
The first quarter of this year also saw a massive increase in appetite for social venture funds. These funds raised commitments of Rs 428.29 crore, compared with Rs 11 crore raised a year ago. Small and medium enterprises or SME funds continued to be out of favour with zero funds committed, raised and deployed in first quarter of both 2014 and 2013.
Category II AIFs, which broadly consist of private equity funds and debt funds, were also lapped up by LPs this year with commitments to such funds increasing by nearly six times. These funds got commitments of Rs 6059.08 crore, raising funds worth Rs 2906.57 crore and investments of Rs 2479.63 crore. A year ago, category II funds received commitments of Rs 993.51 crore, with fund raised of Rs 449.89 croe and investments worth Rs 329.64 crore.
Category III under which comprises of hedge funds and PIPE (private investment in public equity) funds raised commitments of Rs 1094.63 crore and corpus worth Rs 905.78 crore, with investments of Rs 644.82 crore, in the first quarter this year. In the same period a year ago, category III funds raised commitments of Rs190.65 crore with fund raise of Rs 58.12 crore and investments of Rs 27.71 crore.
“What remains to be seen is if LPs appetite is only for experienced general partners or they are ready to expand the market with first time fund raisers too,” said Deshpande.