Fierce Growth Makes India A New Private Equity Hot Spot –

India is quickly becoming one the world’s hottest private equity destinations. Over the last several months, a dozen private equity firms have revealed plans to raise India-related funds or to invest in the region. Many of them are small, emerging managers, but there are household names flocking there, too, including The Carlyle Group.

India “is drawing foreign investors like moths to a light bulb”, says Anil Ahuja, CEO of JPMorgan Partners in Singapore. Why? There is a growing understanding that by 2010 India will be the world’s third-largest economy and boast a population of more than a billion people, Ahuja says. Another reason: recent large and prominent exits in India by General Atlantic Partners, Warburg Pincus and others, says Brook Entwistle of Goldman Sachs’ Private Equity Group.

Viewed from the perspective of the rest of the private equity world, the flow of funds into India is miniscule. Not surprisingly, though, for a country with little private equity infrastructure, one of the areas of growth is among funds-of-funds. Such firms are expected to provide an extra layer of due diligence for LPs, who express more than a little cynicism about India’s nascent PE opportunities.

The first FoF dedicated to India- Evolvence India Fun-was founded in March. Based in New Delhi and Dubai, Evolvence was started with money from the Middle East and India. Founder Jay Jaganathan says he spent 18 months meeting with nearly 20 primary fund managers across India before deciding to establish the country’s first fund-of-fund.

Jaganathan says his firm will invest in fund managers for growth or late-stage companies and that his group will also invest in PIPES and do some co-investing. And while Jaganathan is the first to admit that his first fund will be a small one (about $250 million), he predicts that the entry of larger international managers will accelerate the pace of developments in the region.

To wit, Adams Street Partners has spent the last several years studying and preparing for its entry into Asia, and plans to open its first Asian office in Singapore this year. Adams Street will invest in Indian managers as part of its Pan-Asian strategy. The fund already has five investments in Asian fund managers (two unannounced) and has taken a stake in one of India’s most prominent fund managers, Chrys Capital.

Adams Street isn’t the only U.S.-based firm moving into the market. New Jersey-based Rumson Capital Advisors, an emerging FoF, is raising a fund between $150 million to $250 million that will invest in China and India. Founder Alex Bangash says the firm is deep into due diligence in China and India and has made commitments to several funds.

One of the most encouraging signs for Indian private equity is that fund managers raising new funds for Asia and India are coming back to the marketplace with a history of successful exits in India. Among those raising a second fund is Henderson Private Capital, which is currently marketing its Henderson Asia Pacific Equity Partners (HAPEP) II, a $400 million pan-Asia growth capital fund to invest in India, North Asia and ASEAN countries. Kapur says he’s encouraged by the Indian market partly because Henderson’s first Asian fund (HAPEP I, a $210 million fund established in 2001) has realized 95% of the capital it invested.

Like Henderson’s Kapur, Ajit Dayal has been involved in Indian private equity since the early 1990s as an advisor. His 20-year-old Mumbai-based Quantum Advisors is now raising its first independent PE fund, with a goal of $100 million to $200 million.

Dayal says that the Indian buyouts market is overheating and broadening the auction environment that exists for the $1 billion funds in the mid-cap market. “There is too much money already chasing too few deals,” he says.