India: Most favoured PE destination

India has emerged as the most favoured private equity destination attracting $1,239.22 million worth of investments in January, surpassing Asian giants like China and Japan, a study says.

India ranks top in terms of PE investments in January-February and has left behind Asian giants like China with $609 million and Japan with $980 million, according to a report by Asian Venture Capital Journal.

The report, on Asia-Pacific emerging as the most attractive region for investment said, the total Asian private equity capital under management rose by almost 30 per cent in 2006 to $158 billion as compared to $122 billion in 2005.

"It was a watershed year for Asia pacific (private equity)," KPMG Partner and COO for Advisory in Asia Paul Borough commented on the PE investment trend in 2006.

India is also among the top 10 PE destinations last year, with the country witnessing a whopping growth of 252 per cent with investment as high as $7,009 million for 2006 as against just $1, 992 million in 2005, the report said.

The top 10 PE destinations chart includes – Australia with $24,934 million worth investments, China $ 7,721 million and Japan $10, 350 million.

Interestingly, in terms of fund raising focused on specific markets, India faired quite well, while Australia and China were the most popular.

Fund raising for Australia rose 88.9 per cent during the year followed by China at 72.1 per cent, it said. India posted decent increase of 37.6 per cent.  "India and China are really becoming very significant destinations for capital," Borough added.

Asian Venture Capital Journal monitors private equity flows under management around the world. Meanwhile, the AVCJ report sounded a warning bell as it forecast a not so smooth growth of private equity in Asia.

"Some significant risks and issues are already emerging. Regulatory difficulties in China were much publicised last year. However, few seem to regard these as insurmountable long-term obstacles," the report said.

Moreover, intractable challenges may come from the industry itself as funds raised at the height of the cycle tend not to perform as well as those raised when the market is down, CLSA Capital Partners deputy CEO Josephine Price said.

Nevertheless, the long-term trend appears still headed toward the US or European levels of penetration into Asia's broad economy, the report said adding the party could be only just starting once large domestic pools of money shift towards PE.