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With big deals rare, global PE fund managers begin to move out

With big deals rare, global PE fund managers begin to move out
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First Published: Mon, Apr 05 2010. 09 14 PM IST

Graphic: Ahmed Raza Khan / Mint
Graphic: Ahmed Raza Khan / Mint
Updated: Mon, Apr 05 2010. 09 14 PM IST
Mumbai: Several Indian managers of global private equity (PE) funds have quit their jobs in the past few months to strike out on their own or move to smaller funds—a trend that industry executives say stems partly from the rarity of big-ticket deals coveted by overseas investors.
Last month, Warburg Pincus India Pvt. Ltd managing director Rajesh Khanna stepped down to start his own PE fund. Khanna declined to comment about his plan for this story.
Graphic: Ahmed Raza Khan / Mint
In December, Harsha Raghavan, who was with the PE arm of Goldman Sachs in India and later moved to the local unit of UK-based buyout firm Candover Investments Plc., teamed up with Neeraj Bhargava to start Steer Capital after Candover shut its India operation. In August, Subbu Subramaniam, a partner with Barings Private Equity Partners India Ltd, left to start his own fund.
“Foreign funds bring only two things—access to funds and investment discipline. After investing in India, frustration creeps in (among local managers) when the fund does not understand the Indian market as well as you do,” says another fund manager who is setting up his own fund but did not want to be named.
There have also been cases of managers moving from larger funds to smaller ones.
“In a relatively smaller firm, the decision-making process is more streamlined,” says Sohil Chand, managing director of Norwest Venture Partners India. “Also it offers you flexibility in terms of investments as both smaller deals and larger deals can be done.”
Chand moved from Goldman Sachs’ Special Situation Group (which invests out of the balance sheet of Goldman Sachs) to Norwest Venture Partners India, which is globally known for its venture capital investments and now also undertakes growth equity investments. Chand moved to Norwest in October 2008.
“Having a fund makes it more focused because making investments from the balance sheet has its own constraints,” he says.
Investments made from the balance sheet of the company are dependent on its performance. However, there is flexibility in investing from a fund, which has the mandate to invest in early or growth stage companies.
The departures of fund managers are partly related to the absence of big-ticket deals that are sought by large PE funds. The lack of enough such deals, in turn, leads to fund managers not earning the carry, which refers to a PE manager’s share of the profits made on investments.
Some fund managers attribute the movement of personnel—all too common in markets where the PE and VC space has developed—to the frustration that creeps in because of missing out on deals in the potentially lucrative mid-cap space that’s neglected by the big funds.
The carry, which can be substantial depending on the size of the deal, is either structured on a deal-by-deal perspective or a fund life perspective. In the absence of large deals, fund managers are deprived of a large part of their expected earnings. Last year, many fund managers did not get the carry due to the lack of deals done or exited.
“Either you get your carry if you did a good deal and exited and your investors get money or there will be some structure where you will have to wait for the whole life of the fund. At times, the carry could be 10 times the basic salary,” says Vikram Utamsingh, executive director and head of the PE group at KPMG India Pvt. Ltd.
“What also tends to happen in the global fund is that the Indian portfolio may be doing well but portfolios elsewhere are not, so the carry gets contaminated by losses that have realized outside the country,” says Ajay Relan, founder, CX Partners, who moved from Citi Venture Capital International to start his own fund.
Akhil Awasthi, previously a partner with Barings Private Equity Partners (India) Pvt. Ltd, which has about $1 billion (Rs4,470 crore) under management, moved to head Tata Capital Ltd’s mid-market PE arm, which plans to launch a $350 million fund.
In October, Neeraj Bharadwaj, former country head of Apax Partner, a PE fund, moved to Accel India, a venture capital fund, which is looking to expand its growth stage investments.
shraddha.n@livemint.com
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First Published: Mon, Apr 05 2010. 09 14 PM IST