Over 90 per cent of control deals in India are done by global funds to the exclusion of Indian institutions such as banks, insurance firms and pension funds, a top private equity official said on Tuesday.
“This is not because the local funds don’t have the capability to do it, they just don’t have the avenue to do it because of our regulatory restrictions. There is a need to put domestic funds on a level-playing field with global peers,” Renuka Ramnath, CEO, Multiples Asset Management, said at an event organised by IVCA, an industry body, in Mumbai.
She said the alternative investment fund (AIF) regulations were drafted to protect the smallest of the small investor and to ensure the economy was not indebted.
“The fact remains that regulators don’t talk to each other and take archaic rules and try to modify them to take care of new requirements of institutionalisation of ownership, delisting of companies and so on. No matter what road you take, you hit a roadblock. This problem is uniquely faced only by Indian managers,” Ramnath said.
She drew a comparison between the AIF rules in the mainland and GIFT IFSC. “While the latter has a lot of flexibility, the former has a lot of limitations. And you are tied in the hip because your investors don’t want you to have mismatched portfolios between these funds,” said Ramnath.
PMS shares
She said using the PMS route for allowing co-investment came with its own set of challenges. In a PMS, the investor is the ultimate owner and his name has to be in the cap structure.
“In dematted shares, you cannot give control to the managers. And therefore who is going to take decision on those shares remains an unanswered question. A lot of documentation is required to be done on how these investors would behave on a going-forward journey and whether the managers would have full control on the PMS shares,” she said.
Gopal Srinivasan, Chairman and Managing Director, TVS Capital Fund, and Board Member, IVCA, said the PE-VC industry needs to better its returns by increasing the availability of assets using different strategies like control or buyout.
“For the average Indian investor, between investing in public markets and private equity and venture capital, there is an emotional challenge. They want to invest in the private asset class and see the value of long-term compounding, but there is not much of a difference (in median returns) and often the public asset class gives higher returns,” he said.
