Fund investing remains a central pillar of our strategy and we have capital at work in 159 funds operating in 75 countries. We are one of the largest investors in private equity funds in South Asia, supporting 37 funds investing across the region, including in 25 out of India's 29 states.
Why we invest through private equity funds
In the emerging market context, small or insufficiently liquid capital markets can prevent capital from being directed to its most productive uses and prevent investors from participating in economic activity. In these markets, private equity represents an important source of long-term finance, complementing more traditional bank debt, project finance and shorter-term working capital facilities.
Private equity investors offer more than financial backing. By investing risk capital, they become partners in a firm’s growth, providing technical expertise and networks, introducing international practices, driving operational advances and improving environment, social and governance standards. It is a form of capital that allows business to expand, create jobs and ultimately drive growth in their economies.
By supporting the best private equity investors through investing in their funds, we can get capital to far more businesses and support more growth and jobs than we would be able to if we only invested directly.
Our commitment to the private equity market in Asia
Private equity remains a young industry in South Asia. The growth story of South Asia – driven by a growing middle class and an increase in demand for goods, services, and supporting infrastructure – continues to draw increasing amounts of interest from international investors, but private equity penetration on the sub-continent remains low.
- India, the biggest private equity market in the region, has a private equity investment to GDP ratio of 0.34%, compared with 0.78% in the UK and 1.02% in the US (EMPEA, 2011). Other countries in the region, such as Pakistan and Bangladesh, have negligible private equity penetration despite large population and GDPs.
- After a peak of in 2008, post-financial crisis fundraising for South Asia has plummeted from ~US$11bn to US$3.5bn in 2012 by India-focussed funds against a figure of US$206bn globally.
Against this background, DFIs remain a crucial source of capital for private equity funds, providing the early financing needed to prove the commercial viability and attractiveness of investing in such vehicles.
Since 2004, we have played a pivotal role in establishing and supporting the growth of the private equity industry in Asia. Over this period, we have committed US$2.4bn to 68 funds across Asia, Central Asia, China and South East Asia including US$1.5bn committed to 38 South Asian funds.
Today, we are among the largest providers of capital to private equity funds in South Asia, with over 350* underlying companies invested through 37 private equity funds managed by 24 fund managers. Approximately 50% of managers we have backed through fund commitments in South Asia are first-time managers.
We aim to commit around US$150m each year to private equity funds investing in South Asia. In doing so, CDC seeks to maintain a balance of diversified strategies including generalist private equity funds, SME, growth equity, venture capital, and sector specific strategies such as infrastructure, healthcare, education and agribusiness.
What CDC looks for from fund managers
We aim to explore opportunities across our geographic remit of India, Pakistan, Bangladesh, Nepal, Bhutan, Myanmar, Maldives and Afghanistan. We will maintain and create new relationships with fund managers who are strongly aligned with our mission to build businesses and create jobs across the region, especially in more challenging geographies.
We support strong teams with a deep knowledge of their markets and an ability to identify and add value to those businesses that can grow and create jobs over a medium-term time horizon. All our investment partners must also adhere to CDC’s Code of Responsible Investing and work towards achieving good ES and BI practices at the fund level as well as at the company level.
What fund managers can expect from CDC
We provide long-term, patient capital on commercial terms. Our investment processes are rapid, non-bureaucratic and transparent with clear milestones and decision points and our due diligence is designed to add value to businesses and fund managers as well as inform CDC’s own decision making. We have a strong reputation for supporting fund managers to help them achieve good standards of governance and robust environmental and social policies.
As a pioneering investor we work with fund managers to help create new funds, especially in more challenging areas, by proactively encouraging talented new teams and by helping them to attract capital. We have a strong track record of backing new teams and funds.