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August 08, 2008

Limited Partner Interview: PCG International's Steven Cowan

Venture Intelligence recently spoke to Steven Cowan, Managing Director, PCG International (PCGI), an affiliate of US-based Pacific Corporate Group, that invests in emerging markets private equity funds. Prior to PCGI, he had worked with Overseas Private Investment Corporation (OPIC) and before that, was an attorney with leading US law firms. (The full interview will be published in the forthcoming Venture Intelligence Quarterly Roundup Report).

Venture Intelligence: Please tell us more about your firm and its investments in India.

Steven Cowan: Founded in 2005, PCGI is focused on Private Equity outside the US through partnership and co-investments across VC and PE sectors and stages. We are currently a team of 10 based in Washington D.C, with offices in California and Hong Kong and manage more than $1 billion. Our team is experienced in the emerging markets and some of them have been associated with PE in India since the 90s. Our geographical split right now is approximately around 25% in Central & Eastern Europe, Latin America 20%, India 15%, China 15%; Japan 5%, Israel 5% and regional Asian funds 15%.

VI: Can you tell more about your investments in India-focused funds?

SC: Excluding regional funds, PCGI has so far committed about $50 million in India across 5 funds. Being stage agnostic, we have invested across the spectrum. We are very interested in groups attempting complete control transactions.

VI: What is your typical investment size?

SC: We typically invest between $5-50 million in any fund. In certain cases, our bite size could go higher.

VI: Do you invest in first-time funds?

SC: We generally avoid first time funds unless it’s a compelling opportunity or the team is very promising.

VI: We noticed fewer new funds being closed in recent months compared to a couple of years back. How do you see the current fund raising environment?

SC: The fund raising environment is going to be a little bit more challenging in the immediate term. With think this change comes in some measure because institutional investors have had to reduce the rate of increase in their exposure to Private Equity as many have guidelines to cap it at a certain percentage of their overall portfolio. And, as the value of their portfolio diminishes with the public equity markets falling, their ability to commit to additional funds is reduced. This is what is referred to as the ‘Denominator Effect’.

At the same time, investors are also becoming more cautious. This caution may have some impact on the PE in India. The macro-economic environment and the run-up to the general elections also could have an impact on fund raising. Investors may ‘wait and watch’ to gauge the policy initiatives of the next government.

VI: The sweet spot in India seems to be largely in the growth capital segment. Is this going to continue? What trends are you seeing in terms of new funds being raised?

SC: The market appears as though it is gradually evolving towards an increasing number of control transactions. We are also seeing increasing specialization among funds. While there has been a great deal of emphasis on Real Estate and infrastructure, we are seeing an increasing number of funds focusing on other sectors and stages as well.

VI: What is the biggest issue facing Indian private equity at the moment?

SC: From our perspective, the two big challenges appear to be the macro environment and an increasingly competitive market resulting in higher entry multiples.