Confidence is a strange thing. It feeds on itself. When everyone is gung-ho, the environment changes to make room for success. We had witnessed this during 2007-08 when record amounts of private equity capital were raised. However, more than the PE fund managers, it was really the benign environment that spelt success for them. By the same yardstick, widespread pessimism is a recipe for failure. For instance, the fundraising environment is challenging right now. Huge dry powder continues to frustrate in a market beset with intense competition. The rupee has plunged. And there is a policy paralysis in New Delhi. All these could add up to impact the current scenario.
But we should also remember that even if the GDP growth rate falls to 6.5 per cent, which is possibly a worst case scenario, we are still not doing too badly. The eurozone is tumbling and the recovery in the USA is painfully slow. Moreover, LPs, apparently, go behind the GDP. According to the findings of the VCCircle survey, which has collected responses from 60 Indian GPs – 2012-13 will turn out to be a good vintage year for PE/VC investments. In fact, both private equity and venture capital fund managers look set to outpace their deal-making levels of 2011. Much confidence is seen as far as exits are concerned, with fund managers expecting to deliver returns in excess of 25 per cent this year, which might well turn out to be the report card year for a host of these 2007-08 vintage funds as most of them had raised money during that period.
Certainly, things are not as bad as they seem.
2012-13 To Be A Good Vintage Year For PE Investments
There is a near-unanimity on how 2012-13 will turn out to be in terms of a vintage year for private equity investments. Around 40 GPs with whom VCCircle has spoken believe that 2012-13 will be a good vintage year for investing. In fact, some of them believe that this specific time span will prove to be a banner vintage. “I feel the 2012 vintage of funding will be much more rewarding than the 2008 vintage,” said a respondent, with more than $1 billion in assets under management and currently raising a $500 million fund. This is primarily being seen as the outcome of two factors – the difficult capital markets bringing in sensible entry valuations and the fact that there will be lesser number of funds participating for deals, as only a few PE funds will have the access to capital and the ability to invest against a backdrop of a difficult fundraising environment.
Ditto for VC fund managers who feel that the crazy valuation scenario is softening and coupled with strong growth fundamentals in near-term, it ensures a good vintage for this year.
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