Private Equity Funds - Shift from Real estate to Education and Health ?

Fund raising by real estate sector focussed private equity funds have declined 61 per cent to USD 17 billion till May this year, as investors turned cautious.

According to a report by global research firm Preqin, PE investments till May this year has seen private equity real estate funds raise USD 17 billion, a reduction of 61 per cent on the same period in 2008. PE fund raising till May 2008 stood at USD 44 billion. The report said that with the slump in demand in the realty space, PE investors are being cautious and are making fewer commitments.

Although fund raising across the entire private equity real estate industry has declined sharply, the fall is particularly noticeable for funds targeting Asia. Fund raising by the Asia focussed funds declined 83 per cent over the year-ago period to USD 1.36 billion till May this year. The funds had raised USD 11 billion till May 2008.

However, even in slowdown, sectors like education and healthcare are perceived as recession proof. A report released by Venture Intelligence, a firm that tracks VC & PE activity, has found that over 80% of fund managers were game for investing in education companies with good track record. In the current uncertain economic environment, the attractive and predictable rates of return of the education industry, is serving as a magnet for PE investors.

India has a young population and there is huge emphasis on education. Opportunities exists right from pre-school level training to university and vocational training courses Matrix which had in 2008 invested in Tree House education a pre-school institute has now reported to have put in Rs 1oo Crore in FIITJEE, a preparatory training institute for professional courses. Educom Solutions one of the high flier of the stock market is currently trading around Rs 4000 per share. A few PE firms have reportedly bought stake in the Co.

Already, investments valued at $300 million has been made in this sector. Also, with a potential market size of $40 billion for private educational institutions, the sector appears to be lucrative for investors.

Recently, Religare Enterprises signed a joint venture agreement with Milestone Capital for managing a Rs 600 crore healthcare and education fund. Investment banker Hemendra Kothari recently sold his 10% remaining stake in DSP Merrill Lynch and plans to enter the healthcare and education sectors.

Despite the overall optimism, investors have their set of concerns, the topmost being the regulatory uncertainty surrounding "for profit" ventures in the K-12 (kindergarten to higher secondary) and higher education segments and the lack of scalability of ventures in "non formal" segments. Over half of the fund managers surveyed by Venture Intelligence felt that regulatory hurdles are a significant deterrent to the free flow of investments into the education.

Contributed By:
Prof. J. N. Mukhopadhyay
(Globsyn Business School)

Source: Economic Times & Business India