Since the credit-crisis unfolded in late last year, sovereign funds – and others from Singapore, Korea, Abu Dhabi and elsewhere – have provided more than $50bn of fresh capital to US banks as well as to Barclays and UBS in Europe. So far, these have made terrible investments. The weighted average of the share prices of the big banks the SWFs invested in is down by some 30% since they bought in. Yet how these funds handle domestic criticism could provide clarity on the real nature of their mandates. Most sovereign wealth funds say they are passive investors. Their stated primary aim is to maximise returns on their governments' surplus capital – generated by the sale of oil or the export of manufactured goods. Sovereign-wealth funds may be blossoming elsewhere in Asia, but India's plans to create its own investment fund aren't likely to become a reality soon. Driven by a constant deluge of investment money, India's foreign-exchange reserves have swollen by more than $100 billion in the past year to a total of $294.61 billion as of Feb. 22. Meanwhile, the traditional avenue for these reserves — U.S. Treasury bonds — is becoming less lucrative by the day, as U.S. interest rates head downhill and the dollar weakens. […]

Sequoia will invest up to Rs 120 crore in the rapidly growing garment retail business Nahar Retail. Better known by its brand name ‘Cotton County’, Nahar Retail attempts to do what very few have managed in India, build a profitable garment brand with an associated retail presence. To be fair to Nahar Retail, it has covered a lot of ground since its launch. Some reports suggest that it has 400-plus outlets in 300 cities. This is a massive reach. However, in retail, it is one thing to quickly expand reach. It is quite another to build a profitable business. The retailer has to ensure that a majority of the stores break even and become decently profitable. This requires ensuring foot falls, then conversion of those foot falls into sales. Not every attempt succeeds in this. Arvind Brands tried to build an aggressive retail presence about 6-8 years ago. It succeeded for a while, at least in establishing a large network. But then it rolled back most of that strategy within 2-3 years, which seems to suggest that most of the stores never reached breakeven. […]

Private equity managers going into emerging markets in search of higher returns or in hopes of avoiding the global credit crunch won't escape the impact of a U.S. recession, the president of the Emerging Markets Private Equity Association, or EMPEA, said Thursday. “At a minimum, a U.S. recession will negatively impact growth prospects for some, if not many of the companies in a fund manager's portfolio,” Sarah E. Alexander said at an EMPEA conference in New York. But investors who got burned in emerging markets during the early 1990s recession should take comfort in the “fundamental shifts” and growth that emerging market economies have experienced. “Let me convince you that a crash is highly unlikely,” she said. Many private equity managers have a lot riding on these fundamental changes. Last year, the private equity industry raised more than $59 billion for investments in emerging markets, a record and nearly double the amount raised in 2006, according to EMPEA data. […]

If it's any consolation, it's not just you who have lost money in the market. Even the so-called market-savvy have. One subset in the latter group is private equity (PE) funds, many of which are banging their heads for indulging in a bull market phenomenon called private investment in public enterprises (PIPEs). Most such PIPE deals, in which PE players took stakes in listed companies, lured by the phenomenal market run in the last five years, have come a cropper. The embarrassment gets magnified when you consider that a PE fund's traditional mandate is to buy into unlisted companies, and create value in them. An analysis by DNA Money of data provided by Venture Intelligence shows that, of the 51 PIPE deals in India in 2007, 33 have lost money. That's more than 60 per cent of the transactions. […]

The rise in the cost of debt across global markets will force the private equity (PE) business to build value through operational improvements and growth, rather than from leverage, according to a joint study by The Boston Consulting Group (BCG) and Europe-based IESE Business School. The study, The Advantage of Persistence, said that though the global credit crunch has led to a drop in large PE deals, it is unlikely to curb the sector’s long-term growth as the basic elements of the business model remain intact. The PE sector is expected to achieve an annual growth of 15-20% until 2011. “India will continue to attract PE capital,” said Harsh Vardhan, a partner and director at BCG in India. […]