Allowing insurance companies to park investors’ money in VC funds will jeopardise their future
Performance of VC funds has always been under scanner. Kalpana Jain, Senior Director, Deloitte India (for those who do not know, Deloitte handles more than 50% of the PE deals worldwide) avers to B&E, “Only three out of every 10 PE deals turn out to be a success.” On the other hand International Finance Corporation in one of its working papers titled, ‘Commercial Discipline for Development Impact’ has mentioned, “Even well-performing private equity funds tend to have only 10%-20% winners.” That simply means when insurers will put investors’ money in VC funds, they will actually be betting on a less than 30% success ratio. So, now on investors must keep their fingers crossed while paying premium for the safety of their future.
However, supporters of IRDA may argue that the regulator has not allowed insurers to put in a large share of the investors money in VC funds. But then, when the government and the regulator are moving forward together to bring in the much needed reform in the sector, what makes them allow to experiment in an area where they cannot go big even in the future. This may be considered as a step taken by the regulator to add some momentum to the flow of funds. However, quite sceptical about it Prashant avers, “This will not have an immediate impact on fund flow as the customer does not understand this asset class fully as they have not been much exposed to it.” Thus even this purpose of IRDA is not going to be fulfilled with the step taken. Better than that IRDA must allow insurers to venture into other asset classes where they can invest higher amounts and still keep the investors money safe. Else, the healthy looking tan will soon engulf his future turning out to be a deadly cancer for the industry.
Performance of VC funds has always been under scanner. Kalpana Jain, Senior Director, Deloitte India (for those who do not know, Deloitte handles more than 50% of the PE deals worldwide) avers to B&E, “Only three out of every 10 PE deals turn out to be a success.” On the other hand International Finance Corporation in one of its working papers titled, ‘Commercial Discipline for Development Impact’ has mentioned, “Even well-performing private equity funds tend to have only 10%-20% winners.” That simply means when insurers will put investors’ money in VC funds, they will actually be betting on a less than 30% success ratio. So, now on investors must keep their fingers crossed while paying premium for the safety of their future.
However, supporters of IRDA may argue that the regulator has not allowed insurers to put in a large share of the investors money in VC funds. But then, when the government and the regulator are moving forward together to bring in the much needed reform in the sector, what makes them allow to experiment in an area where they cannot go big even in the future. This may be considered as a step taken by the regulator to add some momentum to the flow of funds. However, quite sceptical about it Prashant avers, “This will not have an immediate impact on fund flow as the customer does not understand this asset class fully as they have not been much exposed to it.” Thus even this purpose of IRDA is not going to be fulfilled with the step taken. Better than that IRDA must allow insurers to venture into other asset classes where they can invest higher amounts and still keep the investors money safe. Else, the healthy looking tan will soon engulf his future turning out to be a deadly cancer for the industry.
Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
and Arindam Chaudhuri (Renowned Management Guru and Economist).
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