Mumbai: In a bid to sharpen its focus on alternative asset classes such as private equity (PE), real estate and infrastructure, UTI Asset Management Co. Ltd (UTI AMC) has drawn up plans to hive off its PE business into a separate fully-owned subsidiary, according to three people with direct knowledge of the matter.
According to one of them, the proposal was cleared by the UTI board before U.K. Sinha stepped down to take charge of the Securities and Exchange Board of India as its chairman.
“Almost all competitors of UTI like ICICI Bank Ltd, Reliance Group, Kotak Mahindra group, HDFC Bank have private equity arms. The new structure will bring more focus to the private equity business, which has huge growth potential,” he said. “This also gives UTI the ability to bring in a professional team and access long-term funds, both foreign and domestic.”
UTI AMC has also identified A. Murugappan, executive director of ICICI Securities Ltd, to lead the new entity.
The Cambridge-educated lawyer has worked for more than 13 years in stock broking, investment banking and the PE space in the UK and India. He had helped launch PE fund Deeva Partners before he joined ICICI in 2007. Murugappan has also had a stint at Actis Advisors Pvt. Ltd, where he was actively involved in its fund-raising efforts.
“UTI already has a private equity business (UTI Ventures) and it will continue in the same manner. There is nothing to comment on the infrastructure fund at this point. We also cannot comment on individual appointments,” said Anita Ramachandran, director of UTI AMC.
Murugappan could use the deep relationships UTI AMC has with Indian companies to grow the new business.
“Large financial institutions such as banks and asset management companies have a significant number of corporate relationships and large footprint helping them generate business leads for their PE outfits,” said Mayank Rastogi, partner (private equity) at audit and consulting firm Ernst and Young Pvt. Ltd. “This was the case globally as well, with a number of banks having their PE arms until recently, when the regulations in the US and Europe brought in some restrictions on the extent of PE exposure for banks and financial institutions.”
UTI AMC is no newcomer to the PE and venture capital business.
In 2009, UTI AMC had partnered with HSH Nordbank AG and Kuwait’s Noor Financial Investment Co. to launch a $500 million (Rs2,260 crore today) infrastructure fund.
The mandate of this fund, called the India Infrastructure Development Fund (IIDF), was to make PE investments in infrastructure projects in India, including those under the public-private partnership model.
IIDF has already made its first investment in a city gas distribution project, Sabarmati Gas Ltd, which distributes gas in the city of Gandhinagar and in the districts of Mehsana and Sabarkantha in Gujarat. It also supplies natural gas to industrial units.
This fund, which currently has $120 million of assets under management, will be part of the new entity. “The fund has raised $120 million in its first close,” said a second official involved in the process. The fund, which had initially planned to raise around $500 million, will eventually raise around $300 million.
Manas Mitra, who was managing the infrastructure fund, quit the firm on 31 December.
The restructuring aims to give a new thrust to the alternative assets business and will be a much-needed diversification for the asset manager, the second person added.
With the planned restructuring, the firm will also increase the team strength from the current size of around four-five people.
The managers of UTI Ventures, led by Raja Kumar, have now become dominant partners of this enterprise. One of the oldest PE institutions in the country, UTI Ventures counts Koutons Retail India Ltd, Zylog Systems Ltd and Ramkrishna Forgings Ltd among its portfolio companies.
In November 2009, the management team, led by chief executive Kumar, also set up a separate investment entity, Ascent Capital Advisors India Pvt. Ltd. Ascent, owned by Kumar and his team, has a corpus of around $400 million.
While UTI Ventures had an equity stake in Ascent Capital Advisors, there was an understanding that this stake will drop as money is raised from other sources, according to a Mint report on 16 November.
After Sinha’s exit, UTI AMC is being managed by an executive committee comprising Jaideep Bhattacharya, chief marketing officer; I. Rahman, chief financial officer; Anoop Bhaskar, head of equities; and Amandeep Chopra, head of fixed income.
Sneha Shah contributed to this story.