Decoding Private Equity in Construction

The Private equity firms rise money from the high net worth individuals and pension funds. The PE firms itself won’t fund projects directly like development banks but they will invest in construction companies for stakes in return, they will buy infrastructure assets from NHAI in the form of TOT (Toll Operate Transfer), REIT’s and commercial real estate assets like data centres, warehouses. The private equity firms, Pension funds, Sovereign wealth funds of other countries and then Insurance companies were eyeing to buy infrastructure assets in emerging markets and they have increasingly invested in our roads and other assets in the past few years. Previously these firms have shown hesitancy on investing in our country because infrastructure projects usually have long gestation period and they don’t always generate the positive NPV rate for the first few years. So, it is understandable from those PE firms, Pension funds point of view because they are here to make money for their investors who have long term perspective. Then our government introduced various reforms especially viability gap funding (VGF) by this policy the losses generated by the projects in the first few years is compensated by our government. After these policy changes the flow of Funds coming into our industry via these firms have increased in the past few years. The prospect of fund flowing into a free market depends mainly upon its economy doing well, rising income levels (disposable income), consumption rate of its people and given our country’s high working age proportion comparing to other emerging markets we can safely assume that these funds will keep on flowing at the increasing rate in coming years.