THE ANNUAL REVIEW 2010 - PEI Media

private equity annual review 2010 pa g e 113
i n d i a
Going solo
The trend of high profile spin-outs continued in the Indian private equity market in 2010.
Jenny Blinch reports
As recently as 2008, the firms making up
India’s private equity industry fell largely
into two camps: foreign players on the one
hand, and captive funds at large, established
Indian institutions on the other.
But in the last 18 months to two years,
the country has gained some notoriety as a
place where, when it comes to private equity
teams, the only thing that can be relied
upon is that senior professionals cannot are
unlikely to stick around.
Though the institutional firms, like
ICICI Venture (part of the ICICI Group),
IDFC Private Equity, and IL&FS Investment
Managers (part of the broader IDFC and
IL&FS groups respectively), are still very
much present and correct, a trend of highlevel
“spin-outs” has seen the Indian market
evolve to encompass a sizeable number of
independent start-ups
“Many of these fund managers would
have stepped out for greater independence
in the decision-making process, better
alignment of interest with LPs, and also
the monetary perspective,” comments Sanjiv
Kaul, a managing director at New Delhibased
ChrysCapital.
Not only are the economics at an
independent firm better for the GPs running
the fund, but in being so they are also more
attractive to LPs – in fact, independence
is something that is frequently sought by
foreign LPs (if not necessarily by Indian
LPs, who like the comfort offered by an
established brand name).
“The foremost advantage of an
independent platform is that it aligns itself
with only one constituency – the investors,”
states Renuka Ramnath, founder, managing
director & CEO of one of the first spin-outs,
Multiples Alternate Asset Management.
Although churn is never a good thing in
a private equity market, the spin-outs seen
Relan: The spin-outs will one day
themselves generate spin-outs
so far in India seem to have been received
pretty equitably by the industry as a whole.
“It’s a normal progression in terms of the
evolution of the private equity industry and
means an availability of GPs who are able to
focus on a wide spectrum of sectors and deal
sizes,” states ChrysCapital’s Kaul.
This is certainly true. With each
successive fund, many of India’s private
equity stalwarts have climbed higher up the
deal spectrum in terms of size. Meanwhile,
much of the deal flow in the country remains
at the smaller end of the scale.
As Menka Sajnani, vice president, Asian
Private Equity, Auda Alternative Investments,
puts it: “Spinouts are a reflection of Indian
entrepreneurialism, but they are also all
raising sub-$500 million funds and that is a
reflection of the private equity landscape –
it’s hard to do bigger deals in India.”
But as the number of new independents
– and therefore new funds – rises, some are
beginning to question whether they will all
be successful.
“Many LPs have already made
commitments in India, so are reluctant to
increase the number of GPs they support. It
will be a challenge and it will be interesting
to see how many are eventually successful in
raising their targeted fund raisings,” states
Nitin Deshmukh, chief executive officer at
Kotak Private Equity, who estimates that in
total there are over 25 India-focused funds
currently in the market.
“What LPs are looking for is differentiated
strategies – most managers in India do deals
across a wide spectrum – including PIPEs
and pre-IPOs. One question high up in the
minds of LPs is, ‘are managers differentiating
themselves at all?’” states Jayanta Banerjee,
ex-ICICI president and founding partner at
Pravi Capital.
It won’t just be the fundraising success
of the new firms that is being watched –
their investment performance will also be
closely monitored, not least of all by other
professionals who may one day want to spin
out themselves.
“The performance of the current breed
of independent fund managers will in a
way set the stage for the next generation
of professionals to create their own funds,”
comments Multiples’ Ramnath.
All concerned are aware the cycle is here
to stay – and that they themselves may one
day lose professionals in the same way.
“Some of the independent firms will
start losing people and they will set up on
their own. We have seen of the teams that
have been set up in the past splintering,”
says CX Partners’ Relan matter-of-factly.
“I am cognizant of this risk at CX partners,
and we have tried to ensure both through
ownership distribution and empowerment
that we mitigate it. It will be interesting
to see if we succeed: people always have
ambitions to run their own fund.” n