Financial services boutique firm Atherstone Group will float a $75 million (Rs307.5 crore) fund raised from European investors to make early-stage investments of $1-4 million apiece in Indian companies.
“This fund is being raised by us from European investors, leveraging the networks of our partners in Switzerland, Poland and the United Kingdom,” said Gurunath Mudlapur, a co-promoter of the Atherstone Group.
The fund will concentrate on making investments in small- and medium-sized enterprises (SMEs), which require funding to take their business to the next level. The firm hopes to make multi-bagger returns by focusing on a market segment that has significantly less competition than bigger deals running into tens or hundreds of million dollars. Currently, firms such as Swiss BTS Investment Advisors and Clearstone Venture Partners focus on these kind of early-stage investments in India.
Few firms focus on early-stage investments because the risk profile of these investments is high and the promoters require a lot of handholding, said industry experts. A lot of larger private equity (PE) firms, therefore, focus their limited manpower on doing bigger deals that can be easily monitored, rather than a raft of small investments.
“Our SME fund, for instance, would have at least 20-25 investments,” said Mudlapur. But the rewards can be well worth the while.
Diversified portfolio: The Atherstone Group’s SME fund is part of a move to start a full-fledged alternative asset management business that will focus on raising funds from overseas for different objectives
BTS, for instance, has seen high double-digit returns (upwards of 25% per annum compound), on its India portfolio comprising such firms. But finding such firms is not easy as most investment bankers focus on larger deals where the potential to earn fees is much higher. Mudlapur said the SME fund will draw on Atherstone’s investment banking practice that focuses on mid-sized enterprises. But that also raises the issue of conflict of interest, said experts.
However, Mudlapur said other Indian firms such as Edelweiss Capital and Kotak Mahindra operate investment banks and yet run PE funds. Global investment banks such as Morgan Stanley and Goldman Sachs, too, have an asset management business in addition to their core investment banking business.
Mudlapur said the SME fund is part of a move to start a full-fledged alternative asset management business focusing on raising funds from overseas for different objectives.
Girish Bhagat, former chief executive of HDFC Securities Ltd, is CEO of the offshore funds and strategic initiatives of Atherstone Capital (Asia) Ltd. Said Bhagat: “We will work on the SME fund with some overseas partners to help co-manage the fund to bring global risk management expertise.”
The firm also hopes to close its $200 million Belgravia Atherstone India real estate fund that is to be listed on the Jersey Stock Exchange by October this year. The Jersey Financial Services Commission has already registered Belgravia Atherstone Funds PCC on 15 May, said the regulator’s website. “British property firm Belgravia Property Investment Management Ltd and ourselves will be investing $30 million each as seed money in this fund, which will focus on investing in projects or special purpose vehicles pursuing FDI-compliant commercial and residential developments,” said Mudlapur.