The Covid-19 pandemic has taken a toll on fundraising by India-focused private equity (PE) and venture capital (VC) funds, with the ability of limited partners (LPs) to do due diligence on general partners (GPs) and asset allocation of LPs’ global portfolios taking a hit.
Fundraising by these entities in the June quarter plunged to $171 million, a 94 per cent decline compared with the $2.75 billion raised during the same period last year.
“PE, VC fundraising by India-focused funds has been impacted primarily on account of the pandemic and its collateral effects on travel and the ability of LPs to do due diligence on GPs. This is not limited to India but is a global phenomenon, as the dislocation in credit and equity markets has impacted asset allocation in global portfolios of LPs,” said Vivek Soni, partner & national leader (private equity services), EY India.
LPs are cutting down on fresh commitments amid the expected dip in distributions as exits dry up, potential acceleration in capital calls, and the rebalancing of asset allocation, said experts. “The decision-making process for fundraising is on hold as LPs would rather wait for things to stabilise before allocating money to a fund,” said Gopal Agrawal, co-head, investment banking, Edelweiss.
Fundraising typically takes four to six months -- from doing due diligence to signing term sheets to raising capital.
“Private equity firms are busy focusing on existing portfolios, sorting out cash flow issues, and funding needs. So, there has been little time to think about fresh fundraising proposals, except in cases where due diligence has already materialised and terms sheets have been exchanged,” Agrawal added.
GPs looking to raise capital are facing multiple challenges in the current environment, given the sharper focus on the past track record of delivering returns to LPs and exits across cycles.
“For the first time GPs are finding it extremely difficult to get the attention of LPs, which are extremely distracted by what's happening in their global portfolios. GPs with less than 2-3 funds under their belt will find it difficult to raise capital,” Soni said.
