The challenging global environment has taken a toll on fund raising by India-based private equity firms which has fallen to a 7-year low to just under $4 billion, according to data provided by LSEG.

Year-to-date, funds raised total around $3.98 billion, about 62 per cent of last year’s $6.4 billion and a fraction of the $13.5 billion seen in 2022, one of the best years for Indian PE firms. The data provided by LSEG excludes fund of funds.

Barring a few, most home-grown firms, are finding it harder to raise money with limited partners (LPs) demanding better outcomes.

Tough environment

According to private equity investors, this is undoubtedly one of the most challenging environments in which to raise funds for India, as investors would rather allocate capital to US rather than emerging markets such as India.

“Fundraising by Indian PE firms has been few and far between. Apart from a few top ones, the rest are finding it tougher. I believe this is because what they have done in the past — their credentials and exits — are not as strong as those demonstrated by the top firms,” said Aakash Choubey, Partner at law firm Khaitan & Co.

The few PE firms that have been able to raise large amounts such as Kedaara Capital, ChrysCapital and Multiples are the exceptions in a tight-fisted environment, where LPs are keeping a close watch on returns.

“What few of them have managed to do is slightly different, as they adopted a buyout strategy, which other firms were not pursuing, and have successfully delivered. So, I don’t think it’s a question of their inability to raise good capital; rather, it’s a problem with the performance of the general partner,” said Choubey.

Opportunities

Majority of the funds launched are small funds of less than $100 million, said Samir Sheth, Head of Deal Advisory Services, and International Liaison Partner, at BDO India. He pointed out that due to significant market valuations PEs were finding it a difficult to identify investment opportunities and that could account for the lower new fund launches.

“Another aspect making LPs being cautious was the global uncertainty due to the events in Middle East, continued Russia- Ukraine conflict and elections in US,” he said.