Despite ratcheting down expected returns, Chr-ysCapital Investment Advisors said it raised $1.25 billion (Rs5,050 crore) from overseas investors, creating the single largest fund managed by an India-focused private equity (PE) firm.
“We expect future returns to be far below historic returns. The low-hanging fruits have all been plucked,” said Ashish Dhawan, senior managing director, ChrysCapital, which has generated an impressive annualized return of 60% on assets under management since January 2000. The annualized return for the Bombay Stock Exchange’s Sensex during the same period was 18%.
ChrysCapital’s success in raising the fund—more than its previous four funds put together—is a sign that money continues to chase assets in India. The mood among international investors is to look for quality investments at a time when they are jittery, said Dhawan.
ChrysCapital has made more than 40 investments over the last eight years, primarily in six areas: outsourcing, financial services, manufacturing, pharmaceuticals, infrastructure and consumer companies. Among its largest investments are Idea Cellular Ltd and Axis Bank Ltd, the erstwhile UTI Bank.
While the assets under management increased in phases through four funds to touch $1 billion, the fifth fund alone, which closed on 31 July, raised $1.25 billion.
Dhawan declined to say what “likely returns” were indicated to the 75 investors who put money into the latest fund. ChrysCapital declined to disclose the identity of the investors in their fifth fund, but they have traditionally been able to enlist pension funds, endowments and insurance companies, said Gulpreet Kohli, principal at ChrysCapital. A number of investors from the earlier funds have reinvested in the latest fund, he added.
The new fund will have a lifespan of 10 years that can be subsequently extended by another two years.
With total assets under management of $2.25 billion after the latest fund closed, ChrysCapital said it is now the largest India-focused PE firm, a little ahead of ICICI Venture.
“The risk premium has come down considerably as (global) investors have got enough success stories,” said Rohit Kapur, executive director at consultancy KPMG, who specializes in PE. Based on his own experience, Kapur said PE firms would have indicated returns of 25-30% to their investors in the last few years. However, the returns promised investors in PE firms are “predicated upon the firm’s track record,” he added.
The latest ChrysCapital fund would look for deals among public and private companies with a ticket size that could range from $30 million to $300 million.
The holding period of each investment would range from four to seven years and the emphasis would be on firms that have potential to display significant growth, according to the firm’s presentation.
ChrysCapital’s earlier funds have been completely invested in about three years. The latest fund could take about four years to be completely invested. “They don’t want us to feel pressurized into investing,” said Dhawan.
A majority of ChrysCapital’s investments have been minority stakes in companies, though buyouts that give it complete control of the target company have also been increasing. The incidence of buyouts has increased to about 25% of the deals compared with about 5% about three years ago, said Dhawan.
Buyouts in India, however, present their own set of challenges. One of them being the shallow market to structure debt financing. Most of the debt financing of deals is done using a company’s asset base as collateral rather than a parameter such as expected cash flows, said Kohli.