Wealthy Indian families are increasingly seeking more direct and sector-specific exposure to the country’s increasingly mature – and currently booming – private equity market.

They are now increasingly avoiding e-commerce and instead looking for business-to-business technology, consumer, healthcare or fintech assets, either directly or via funds, said Munish Randev, chief investment officer of multi-family office Waterfield Advisors, which has some $2 billion in assets under advisory across 32 clients.

Of the $11.2 billion in private equity and venture capital investments in India in the first half of 2017 – a record for the first six months of a year – financial services and tech accounted for the biggest portions of $3.4 billion and $1.9 billion, respectively, according to a report from consultancy EY this month. Investment in e-commerce, however, fell to $617 million, 42% down on the first half of last year.

The first round of local family investors, which allocated to PE funds four or five years back, are starting to see their investments grow or have some kind of IRR coming, explained Randev. “They are taking a bit of a halt from investing in similar PE or VC funds and moving into newer areas and sectors.

“The mandates from our clients are very specific,” he added. “Some are looking at startups in genetics or consumer brands or the healthcare space.”

Direct approach

Moreover, families are increasingly seeking direct and co-investment opportunities, noted Randev, whereas Waterfield has traditionally focused chiefly on private equity fund selection.

“In the past year we have been increasingly looking for startups by engaging with incubators, accelerators, promoters and funds,” he said.

The newer generation at these family offices is having an influence, added Randev. “They prefer opportunities where they can invest directly and be part of the growth story of company.”

This is labour-intensive work, of course, so Waterfield plans to add resources in this area.

Randev oversees unlisted asset investments, along with an analyst, but he is recruiting another senior executive who will focus on sourcing investments and conducting due diligence. “We’re looking to hire someone from the private equity side in the next two to three months” he said.

Maturing industry

Indian families’ increasing appetite and sophistication when it comes to investing in private equity reflect the growing maturity of the domestic industry.

Randev said he had seen increasing flows into the unlisted space in India for a few years. Initially the large PE and VC players were mostly overseas funds, he noted, but in the last seven years domestic funds have been raising money from local clients and ploughing it into domestic assets.

Local funds are also growing in size, he noted: in the past they had been typically been around $100 million, but now domestic private equity firms are raising $250 million-plus.