Sovereigns see potential in Indian private markets Despite tactical switching between developed markets, increasing investment into emerging markets remains a long-term strategic objective for many sovereigns (as stated in our 2016 report). Stock markets have relatively small coverage of emerging market economies, driving greater emphasis on illiquid real asset categories. In fact, many sovereigns use infrastructure deals to manage near-term macro and geopolitical risk, as outlined in our 2015 study. However, challenging placement dynamics and uncertainty over commodity prices mean sovereigns are being more selective in their emerging market investments, focusing on the identification of high- growth markets. While many emerging markets have struggled with slow commodity price recovery and political instability, India has experienced consistent growth in GDP (figure 11). However, India’s economic structure is complex and publicly listed investments have relatively low coverage of the wider economy (with stock market capitalisation 65% of GDP in India, relative to 146% in the US and 112% in the Uk). Indeed, many sovereigns are focusing on opportunities within Indian private equity (as seen in India’s increasing private sector attractiveness in figure 12), seeking returns from its a rapid urbanisation. Fig 11. Gross domestic product of M2015 Typically, in emerging markets sovereigns have emerging markets (USS, trillions) @ 2016 faced considerable regulatory and governance M2017 challenges to direct private equity investment, leading them to seek assistance from external managers. However, in 2016 India introduced reforms to foreign 1.86 India direct investment, loosening government restrictions 203 on investment in certain sectors, with wider reform ’ expected in 2017. This has enabled large investment ZICS) and liability sovereigns to invest heavily in Indian > AT Brazil private equity, and many funds are developing internal : management expertise based in India to h