India Summit: GPs must get exits in order

Improving returns and changing LP perceptions were among key talking points at the PE Asia India Summit in Mumbai.

Only $20 billion has been returned to investors by private equity firms in India over the last five years, according to Venture Intelligence data unveiled at PE Asia’s India Summit 2012 in Mumbai this week.

Delegates at the forum heard that in comparison, $50 billion has been invested in private equity during the same period, contributing to the negative LP sentiment.

GPs must prioritise exit discipline even if the price offered isn’t quite right, explained Brian Lim, partner at UK-based fund of funds Pantheon Ventures.

He said firms must make sure their portfolio companies are not reliant on one exit route and align with entrepreneurs on their exit strategy. “Time isn’t necessarily a friend. IRRs do tend to decay with time so the pressure will be on to cash in these investments.”

Nirav Kachalia, managing director at Morgan Creek Capital Management, said innovation, conviction and returns are the key GP attributes that will appeal to LPs interested in India.

“One real estate manager we have was on its first $120 million fund. He has never been a principal in his life and comes to me on his third deal saying he wants to do something very different and put a third of his fund in one deal. I told him that he is crazy,” Kachalia explained.

However, he took the idea to his LPs and ultimately returned the entire fund by selling half of the stake in this one deal. Kachalia highlighted his conviction, proof of returns and good communication with LPs as the key components of his success.

Flexibility is also critical in gaining long-term success. Renuka Ramnath, founder and chief executive of Multiples Alternate Asset Management, identified this as one challenge faced by all LPs. “It is almost impossible to replicate the same strategy from one period of time to another and gain the same alpha,” she said.

“The market learns what makes money quickly,” inevitably resulting in more competition the next time a GP tries to execute the same strategy.

Ultimately, the panel agreed returning cash to investors is the most important focus for India’s GPs now.

Ramnath concluded the panel saying, “LPs want to see [GP] confidence in making deals work and make money. Nothing speaks louder than cash on cash.”