UK's CDC Group intends to ramp up investments in India despite difficulties
The CDC Group will be increasing its investments in India despite identifying difficulties which include a sluggish economy and held up reforms. The country's private equity market is also very competitive as firms deal poor returns on investments and few exits. Diana Noble, the Chief Executive Officer or the UK government's development finance institution, told The Economic Times that the CDC has already poured USD 260 million in five transactions in the country made in the last six weeks.
According to Noble, a lot of these transactions were made through its role as a fund-of-funds which looks for investments in other private equity funds. This included a USD 200 million investment in the IIF2, a new infrastructure fund of the asset management arm of IDFC. IDFC is an infrastructure finance firm that provides end to end financing for infrastructure projects. CDC Group's investment to IDFC Alternative, the alternative asset management vertical at IDFC, is the biggest commitment to an India-based fund to date, The Economic Times reported. It also comes at a period when core sector companies in India were dealing with regulatory hurdles and obstacles to execution, the report added.
With CDC's funding, the IIF2 will close with an initially amount of USD 644 million. However, IDFC fund managers say they want to raise USD 1 billion by the end of the year. Noble said, "Even today, infrastructure in India is a huge opportunity for us and 28% of our local investments are in this space. But we felt it's best to rely on a platform like IDFC. They know the ground realities far better and can manage investments more efficiently throughout its life cycle."
The CDC has given support to 35 funds that focused on India to date. Noble said this was a good time to invest. "There was a PE bubble that had to burst and I personally believe that the post-bubble period is a good time to invest. As markets return to normality, I think the returns will revert to a reasonable equilibrium. We are not looking at 15%+ returns, but somewhere in the 10-12% range, net of all costs," she told The Economic Times.