Hong Kong- and Singapore-based private equity (PE) firm Symphony Asia Ltd, one of the oldest PE investors in India, has reinvented itself after more than a dozen years in the business. The firm, which was operating under the umbrella of London’s Schroders Plc., had invested three traditional PE funds in Asia between 1992 and 2005 as Schroder Ventures, achieving 30% returns. Instead of raising a fund through institutional investors, in August, the firm went to the capital market and raised $340 million (Rs1,340 crore) on the London Stock Exchange. It now operates under the name Symphony Asia.
The firm has narrowed its focus to consumer-facing companies in the health-care, hospitality and lifestyle sectors. The new fund, raised from the public, has already deployed $100 million across five investments—three in Thailand, one in Singapore and one in Macau. Although India hasn’t seen an investment from this corpus yet, the country has one of the firm’s 10 investment professionals and received $150 million of the firm’s $1.2 billion under management since 1995.
In an interview with Mint, Hong Kong-based partner Sunil Chandiramani explains the firm’s change in course. Edited excerpts:
Why did you tap the markets?
There are many factors, but basically we had two choices. We could become a multiple-billion-dollar fund like everyone else was doing and compete for the same deals. Or we could be different. We decided we wanted to be different and we wanted to be able to control our destiny.
Sunil Chandiramani, Hong Kong-based partner of Symphony Asia Ltd
How will this move differentiate Symphony from other players?
One of the things we constantly face with entrepreneurs is that they don’t want to sell their businesses but an IPO (initial public offering) can cause them to be locked in longer than they may want. So now we can give a third option for exits. We can give them stock in our diversified investment company. As long as we are comfortable that there is a succession plan in place, we can swap stock in his company for stock in our company.
How will this route help you ‘control your destiny’?
One of the issues with traditional private equity funds is the 10-year time frame. Since you don’t buy all in one day, your average holding period becomes three to five years.
In developed markets, where people are buying mature businesses, this shorter holding period gives you time to make a good return. This is because you are not really making returns from growth, you are making it more from financial engineering or acquisitions, or maybe you buy and sell at the right time.
In Asia you invest because of growth, with companies growing at 20-30% a year. But this leads to high valuations – like it has in India. Every market in Asia at some point or the other has been like that. So if you end up buying when valuations are high and you have to sell when your fund life comes to an end– that’s a problem. You will have made some money because of growth but you lose some money because of multiple compression. Why should you do that?
Did you ever face this problem?
Our 1994-1995 vintage fund saw rough times with the Asian crisis and when the fund life came to an end, our investors wanted to sell. But we were just beginning to see the turn up that we had seen in other Asian markets, and knew it would take 18 to 24 months to see higher valuations. Yet, investors were concerned about another crisis. So even though we didn’t really want to sell, we were required to sell, because the fund’s life came to an end. To an investor this may not be a big deal, but this was a $220 million fund and had we waited another 12 to 15 months, we would have made another $150 million – with 20% of carry that’s $30 million. That is a lot of money to leave on the table.
Why have you changed your name?
The arrangement with Schroders was essentially a license arrangement and we came to the conclusion that the economics did not make sense any more. In fact, every entity that was part of the Schroder Ventures network has over the last 5 years or so rebranded themselves. But we are the same team and follow the same investment strategy as before.
Why are you focusing on consumer companies?
While in the past we have done deals across sectors, we have done really well in the consumer space. And this is another way for us to differentiate ourselves, as few PE funds focus solely on the consumer segment.
Where are your investments concentrated?
Across Asia. India, Hong Kong, Singapore, Thailand, Australia, New Zealand, Indonesia, and Vietnam, but we have no presence in Japan or Korea. We are beginning to look at China, but at present we invest in that country through portfolio companies, as it is a less risky exposure.
How does India compare to the rest of Asia?
India is interesting, but there are a lot of interesting things happening elsewhere as well. Vietnam is a fantastic place to invest in, but there too valuations are an issue. Thailand is attractive to us because we have been investing there since the early 1980s and have two or three people that we continue to back. And because of the political issues, others think it is not a good market. Indonesia has select opportunities. We used to own the Pizza Hut business there, which did very well when we sold it to a strategic investor. We are not as active in Indonesia as we are in India, though. But all things remaining equal, we would expect India to have a larger share of our investment funding than other countries.
Are India’s rising valuations of concern?
Since we are focused, our investments tend to be more strategic in nature and we are able to bring value to our investee companies that effectively lowers the valuation.
People talk about corrections, and the markets will correct. But maybe by 10%.
What is Symphony’s history in India?
We started looking at India in the early 1990s, but made our first significant investment in 1995 in Apollo Hospitals. Apollo was actually two companies: Indian Hospitals Corporation (IHC) and Delhi Apollo Hospital called Indraprastha Medical Corporation (IMCL). We had invested in both and our stake in IHC was merged into Apollo Hospital.
At that time, during 1994 -1995, valuations in most of Southeast Asia in were very high. India was comparatively attractive. Many of our investments were made in the low single digit price earnings ratios or low teen. So we made a spate of investments in India between 1995 and 1998. Apollo Hospitals to Blue Dart. And a couple of pharmaceutical businesses: Orchid and Strides. We have directly invested in India and also through portfolio companies. For example, Singapore’s Parkway Holdings has investment in India and so does Aman Resorts, which was our portfolio company until we sold our stake to DLF in the last few weeks.
Do you look at PIPE (private investment in public entities) deals?
We look at everything. The only reason we did PIPE deals here was because all the good companies were already public.
But these days, people are taking 4-5% stake in public companies, which is not our style of investing. We may take 5-10% but not without a board seat or adding value of some kind.
There is a lot of money that has to be put to work in a short time frame, and the easiest deals to do are PIPE deals. If you mix them up in a portfolio of other PE investments, it makes sense. But when markets are going up, no one asks any questions. The minute markets correct and you happen to have a lot of these deals where you have no reason to have them other than to put money to work, people start asking questions. Such as: Why am I paying you these fees to buy public stakes?
Will you also look at buyouts?
Let’s define a buyout. Nowadays if someone buys a 20% stake in a business but gets control of the business they call it a buyout. To me that is not really a buyout. It has to be a majority stake.