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Warburg and Citigroup Venture to exit Indian firms
By siliconindia
Mumbai: Private equity fund Warburg Pincus and Citigroup's private equity arm Citigroup Venture Capital International (CVCI) are rushing to exit as they plan to sell stakes in Indian companies such as real estate developer Emaar MGF in initial public offerings, exploiting the record stocks rally this year. "Five years is an average investment holding period for PE investors. If a fund believes that there are no triggers for enhanced returns, it will exit even before five years," said Rajeev Gupta, Managing Director, Carlyle India Advisors, which owns stake in the nation's biggest mortgage company Housing Development Finance.
As reported by the Economic Times, many private equity funds saw their investments diminish last year as companies struggled due to the credit crisis, including the ICICI Venture Funds Management, which saw investments in companies such as retailer Subhiksha resulting in losses. Morgan Stanley fund and foreign venture fund Monet will sell a part of their stake in the TV channel distributor Hathway Cable and Trinity Capital will exit IL&FS Transportation Network, filings with the regulator show.
Part of the reason for the exits may also be inexperience of fund managers in selling down their holdings to realise profits for their investors. "Many PE managers in India are managing either their first or second fund, very few are into their third fund," said Raja Kumar, Founder and Chief Executive Officer of UTI Venture Funds. "As such, many are yet to prove their track record in terms of exits. Private equity is a self-correcting business where managers may not get a second chance to prove the exit track record."
The lack of belief in their own investment decisions of the so called "risk takers" is also visible in the kinds of deals the private funds get into with companies these days. "Of late, we are seeing term sheets providing for downward protection to investors and even sharing upside with the founders beyond certain internal rate of return," said Kumar.
