Private equity firms had raised piles of capital when the going was good, but thanks to the global credit crisis, many of these firms are finding an increasing number of investors who aren’t honouring their capital commitments. While raising capital, private equity funds get commitments from investors such as pension funds, university endowments, hedge funds, fund of funds and high net-worth individuals. These commitments are drawn down as and when the fund makes an investment. This means that till the capital is deployed, its control rests with the investors, collectively referred to as limited partners (LPs). Because of the huge erosion in the market value of their fixed income and equity exposure, many of these LPs, especially the pension funds and endowments, could suddenly find themselves overexposed to private equity, an asset class that is not marked to market. If they decide to reallocate assets, private equity funds may find themselves in a situation they last faced during the dotcom bust, when many LPs pulled out and funds were left with little capital to “draw down”. Another problem could arise from hedge funds or institutions who have been taken over by larger institutions. […]

Private equity (PE) investments in India witnessed a decline for the last three months ended September though the number of deals has increased. A latest data from Venture Intelligence, a research service focused on the private equity and venture capital space, reveals during this period PEs invested about $3 billion in 116 Indian companies, which was lower compared to the same quarter last year when the investment reached at $4.2 billion being invested across 115 deals, but higher compared to the immediate previous quarter ($2.9 million across 80 deals). Simultaneously, there is a rapid increase in venture capital deals, which has a lower deal size compared to PE investments. Venture Intelligence finds that the VC investments have touched at $20 million and deals have gone up to 50 in the September-ended quarter. […]

Private equity deals in real estate may increasingly become scarce in the short term, deepening crisis for cash-starved property firms. PE funds are sitting on a pile of cash but not willing to commit funds as they feel they would get better deals in the near future. “Given the volatility in the market, PE funds in general are not taking any decision on investments. We will be better placed to decide once the dust settles down on the market,” says the head of a domestic PE fund, which expects to invest a few hundred million dollars in real estate. The US subprime wave has now engulfed Indian stock market with realty stocks being the biggest loser. BSE Realty Index has slid 81% off its January peak. It shrunk 45% in a month as of Wednesday. […]

Since the beginning of this year, India’s stock markets have shed some 42% in value and industrial production has decelerated. But, private equity (PE) and venture capital (VC) investments in the country have been resilient, surprising watchers of the risk capital business. Provisional data from research service Venture Intelligence shows that $9.7 billion, or Rs46,075 crore, has been invested in PE and VC-backed transactions in India between January and September, against $9.5 billion in the first three quarters in 2007. The data excludes real estate deals. […]

Stock markets that have fallen for most part of 2008 are delaying private equity, or PE, transactions and also increasing the use of convertible instruments where an investment is converted into equity at a later date at the prevailing price. The delay is because both the companies and investors hold out for a better deal. For companies, a better deal means a higher valuation. For private equity firms, it means a lower valuation. Citigroup Venture Capital International (CVCI), the PE arm of Citibank NA, says it has been exploring potential targets in India for the past nine months, but has closed only two deals, both at the beginning of the year. The snag in most cases was the divergence between what the promoter wanted and what CVCI was willing to pay. By the time promoters adjusted their valuations downwards to reflect market movement, the market had fallen further. That’s a story that is playing out across India’s PE universe. […]