Institutional Investments

Throughout 2019, the global private equity industry accelerated as was reflected in the deals that were executed, monies that were raised and exits that were made. Limited Partners (LPs) remained positive and continued to infuse fresh capital. Even though the year 2019 saw a downward portion of the global business cycle factored due to many reasons in most of the countries, the asset under management grew for majority investors.

Since 2014, there has been a decrease in the number of deals, inversely an upward trend has been seen in the deal value. Private equity firms announced $450 bn of deals in value. Most of the largest PE firms were able to raise fresh capital, firms like Blackstone raised the largest private equity fund and collected $26 bn while Vista Equity Partners raised the largest ever tech fund at $16 bn in the last quarter of 2019. The first year of the next decade would mark the deployment year for these funds.

The theory of many industrial surveys conducted reflect the enthusiasm of the investors in the emerging markets. A quick look at the year 2019 on the investments made in India will showcase that despite the slowdown of India’s growth, funds are not shying away from deploying capital in the country. Private equity/venture capital deals rose to $37 bn across 861 deals including some major infrastructure deals. The encouraging factor is that despite the uncertainties on economic, political and global front, the 2019 tally outdid the previous high of 2018. The year 2019 witnessed 74 private equity investments worth $100 mn or more, accounting for 74% of the total investment value during the period. Of these, 40 were larger than $200 mn each, with five investments of more than $1 bn. 

B2B and technology topped the charts with secondary focus on financial services and healthcare. Paytm raising $1 bn from Alibaba, Softbank and others was the top tech bet. The industry received 32% of the total PE investments in the year passing by as nine new unicorn companies were raised, which include Delhivery, Dream11, BigBasket, Rivigo, Druva Software, Icertis, Citius Tech, Ola Electric, and Lenskart. The deal of the year, however, was in the telecom sector, a consortium led by Brookfield Infrastructure partners acquired Jio tower assets of Reliance Industries in a deal worth $3.5 bn. 

Large investments were made in the infrastructure sector, accounting for 35% of private equity investment in 2019, huge interest in the infrastructure sector has been witnessed owing to the continuous efforts made by the government for creating a sustainable and resilient infrastructure and monetising these public assets either directly or through structures like REITs and INVITs. 

Further, intensified activity has been seen in the distressed market in the last two years. With a total platform valued at $150 bn, investors may see this as an opportunity to buy a mature asset at an attractive valuation. Global funds have shown a keen interest in the array of opportunities available in this area. Several players are looking at either directly entering or setting up their own platform. In 2018, Värde Partners (Värde) and Aditya Birla Capital Limited (ABCL) formed a strategic partnership to pursue investments in stressed assets in India. Lone star committed investment includes distressed debt. Canada Pension Plan Investment Board (CPPIB) recently invested $225 mn in India Resurgence Fund (IndiaRF) which was set up by Piramal Enterprises and Bain Capital Credit in 2016 for investment in distressed funds. 

And let’s not forget the Sovereign wealth funds (SWFs) and the pension funds which have carved their way and have become crucial to the global investment paradigm. In the last decade, these foreign government funds have made major commitments in India by co-investing as well as directly sourcing deals. One of the largest pension funds, Canada Pension Plan Investment Board, active on the ground in India for nearly a decade has made close to $10 bn investment - Byjus, Delhivery, Indospace, Bharti are some of their portfolio investments. ADIA, the third largest SWF in the world has made major bets in India and has broadened its scope to more long-term asset classes such as infrastructure, real estate and private equities. GIC of Singapore tied up funds in KKR to invest in Sterlite Power Grid Ventures’ sponsored IndiGrid, an infrastructure investment trust (InvIT) and is now looking at investing in India’s roads and airport sector. National Investment and Infrastructure Fund (NIIF), India’s first sovereign wealth fund is managing to put to good use the $3 bn that its government recently committed and has already attracted several foreign SWFs into Indian infrastructure and energy assets.

What this means for the year 2020

There's a massive amount of dry powder ($1.5 tn as recorded) currently in the global private equity ecosystem and much of that money needs to be spent wisely within a stipulated timeframe. The year 2020 could be more of a deal-making year than a fund-raising one. Industry experts are expected to deploy money in sectors where growth can be sustained, and commitments are expected to be stronger than any other year. 

LPs have shown a desire to diversify their portfolio into more jurisdictions, especially emerging markets. India has been one of the most important geographies witnessed by the amount of investment made in the last few years. Opening more asset classes for investment, relaxation of policy reforms, mature startup ecosystem and continuous measures to improve the growth of GDP will attribute to the LP’s bullish attitude on the Indian market. The jump in 'Ease of Doing Business' ranking of India from 100 in 2017 to 63 in 2019 is a validation of the efforts made by the government. While the government is taking steps to improve the lending market in India, companies are also resorting to private equity funds. Several funds will find opportunities available at the right points of the cycle that are resilient to economic downturns. India’s structured market is likely to witness investments as the bankruptcy laws turn effective. Funds might see this as an incentive to be exposed to the credit market in India. Funds like Brookfield, Allianz, Cerberus and Lone Start are likely to increase their investments in India. 

The startup ecosystem is making headlines in the country and around the world. While thirteen start-ups became unicorns in 2019, the year 2020 would see a further rise in the number of start-ups joining the unicorn club. 80% of start-ups are looking at an exit by 2024 with open markets and secondary sales taking up a big chunk.

Although high entry valuations and exit overhang have been challenging for LPs in India, the market sentiment continues to be optimistic about the growth of the Indian market.