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Private equity investors in a fix as returns sag

Industry experts say PE funds in India have witnessed a fall in the cash they return to investors, specifically in the past one year.

business Updated: May 14, 2012 21:49 IST
Sachin Dav

Indranil Gupta, 34, working with a multinational electronics firm and a US resident who had invested in an Indian private equity (PE) fund five years ago, has seen his returns fall by 30%.

“When this fund approached me they made a pitch around the India growth story and promised annual returns of at least 20%. Baring the first year, the returns were never up to the mark, and in the first quarter it has dipped by 30% compared to last year,” said Gupta.

Industry experts say PE funds in India have witnessed a fall in the cash they return to investors, specifically in the past one year. While many PE funds have postponed their plans to exit investments due to lower returns other cash rich ones are treading cautiously and avoiding investing anywhere.

PE funds under the Indian law are not required to make their annual return figures public. While at least three PE players HT talked, who refused to get quoted, avow that many PE funds have not been able to give promised returns to investors but claimed, “our fund is doing better than other funds”.

A senior executive with an international PE fund said, “I cannot say that we are insulated from what is happening globally and in India but returns here (in India) are better. Margins are under pressure at portfolio companies due to rising costs (and) also many portfolio companies cannot be listed currently affecting our exit strategy.”

“The worst affected are the real estate funds that had invested at the peak of 2007, as the valuations have dropped and exits difficult,” an analyst said.