MUMBAI: Secondary investors, who snap up stakes in assets held by private equity funds, are ramping up in India to grab a piece of a deal pipeline worth as much as US$20bil.
Demand for these types of transactions has risen in the last few months, according to Paul Robine, founder and chief executive officer of TR Capital, an Asian-focused secondary buyer.
This comes as managers look to sell down nearly US$92bil of unrealised deal value in companies they backed more than six years ago, he said.
“Even if the exit environment has improved a lot, it takes time” to sell these companies, he said, referring to the venture capital funds that have invested in innovative, fast-growing firms in India.
In a secondary deal, investors buy an existing asset or commitment from primary investors or from the private equity fund itself.
A growing segment of the market involves continuation funds, in which assets are shifted to a separate vehicle to allow the fund, or general partner, to hang on to assets longer.
Secondary funds are seeking deals ranging from firms poised to go public in the next 18 months to 24 months, sales of portfolios of assets by venture capital funds to some continuation funds being raised by private equity managers.
These deals could be worth as much as US$20bil a year, according to secondary buyers and advisers.
The success of ChrysCapital Management Co’s continuation fund that raised US$700mil earlier this year to hold on to its stake in National Stock Exchange of India Ltd has spurred interest from other private equity firms, according to Sunaina Sinha, global head of the private capital advisory group at Raymond James Financial Inc.
“We reckon that within the next 12 months alone you will see at least three to four continuation funds being launched in India,” Sinha said.
Meanwhile, venture capital funds, caught in a slow deal-making environment for their growth assets, are seeking exits so they can return money to investors before they hit the fundraising trail again, according to Sameer Nath, chief investment officer and head of venture capital and private equity capital at 360 One WAM Ltd, one of the largest wealth managers in India.
Unlike the United States, Europe and some parts of Asia where secondaries are largely for buyouts, the deals in India are for assets in which managers hold minority stakes, according to Brooke Zhou, partner at LGT Capital Partners.
LGT Capital, which commits 20% to 25% of its global fund to Asia, is also looking at more deals in India, where the pipeline has become larger, Zhou added.
The majority of deals are priced at discounts of between 20% to 25% of their net asset values, making them attractive for secondary buyers, said Amit Gupta, founding partner at TPG NewQuest. — Bloomberg
