Of late, especially in India, even Hedge Funds have started functioning as de facto PE players. Traditionally, unlike PE investments, Hedge Funds usually have a very short term horizon. According to Evalueserve, “As per our analysis, currently there are more than 10,200 Hedge Funds worldwide, which cumulatively have more than $1,800 billion under management. Since VC, PE and other alternative investment-related firms also have approximately $1,800 billion under management, together these two groups currently manage approximately 6% of all assets under management worldwide.” Consequently, it is gradually becoming harder for many Hedge Funds to find good opportunities. The aftermath is that many Hedge Funds have therefore begun acting like PE firms investing with a ‘longer time horizon,’ especially in India.
Prime examples of Hedge Funds in India include D. E. Shaw, Farallon Capital Management, Old Lane Management, among others. Moreover, after SEBI’s restriction on Hedge Funds, they cannot freely trade in stocks, giving them less opportunity to bow out quickly. Financing costs are also an exit barrier for Hedge Funds, given that the short positions entail higher financing costs than long positions in India.
But amidst the obvious opulence, certain structural problems shouldn’t go unnoticed. Currently, Private Equity contributes the most to the Indian Foreign Direct Investment kitty. According to Sumant Batra, Kesar Dass B & Associates, “Conservative estimates suggest that PE investment could multiply manifold if the central and state governments were to take some long overdue initiatives to create a friendly public policy environment for PE investments.” He stresses that simplification of procedures, new assessment of archaic and outdated laws et al, are needed to nurture PE investments.
But there is also a sting in the tail. Many PE funds have been coming through the Mauritius route and analysts think that the RBI might tighten norms to stop this inflow of ‘black’ Indian corporate money to come back to India. If that happens, PE deals could be in some trouble. For now, the PE knell is tolling deafeningly for India and despite all hindrances, India seems to be on the forefront of global PE map. The large volume of PE investments in India in 2007 stands quiet testimony to this fact. The $17.14 billion PE deluge last year was overwhelming; and if market watchers are to be believed, deal-sizes and numbers are only set to get bigger in 2008. But before that, here’s your chance to take stock of some of the biggest deals which hogged the limelight in the year gone by…
Prime examples of Hedge Funds in India include D. E. Shaw, Farallon Capital Management, Old Lane Management, among others. Moreover, after SEBI’s restriction on Hedge Funds, they cannot freely trade in stocks, giving them less opportunity to bow out quickly. Financing costs are also an exit barrier for Hedge Funds, given that the short positions entail higher financing costs than long positions in India.
But amidst the obvious opulence, certain structural problems shouldn’t go unnoticed. Currently, Private Equity contributes the most to the Indian Foreign Direct Investment kitty. According to Sumant Batra, Kesar Dass B & Associates, “Conservative estimates suggest that PE investment could multiply manifold if the central and state governments were to take some long overdue initiatives to create a friendly public policy environment for PE investments.” He stresses that simplification of procedures, new assessment of archaic and outdated laws et al, are needed to nurture PE investments.
But there is also a sting in the tail. Many PE funds have been coming through the Mauritius route and analysts think that the RBI might tighten norms to stop this inflow of ‘black’ Indian corporate money to come back to India. If that happens, PE deals could be in some trouble. For now, the PE knell is tolling deafeningly for India and despite all hindrances, India seems to be on the forefront of global PE map. The large volume of PE investments in India in 2007 stands quiet testimony to this fact. The $17.14 billion PE deluge last year was overwhelming; and if market watchers are to be believed, deal-sizes and numbers are only set to get bigger in 2008. But before that, here’s your chance to take stock of some of the biggest deals which hogged the limelight in the year gone by…
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Source : IIPM Editorial, 2008
An IIPM and Professor Arindam Chaudhuri (Renowned Management Guru and Economist) Initiative
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