The New York-based fund of funds (FoF), Siguler Guff and Co. Llc, has invested nearly 20-30% of its $915 million (Rs4,154crore) Bric (Brazil, Russia, India, China) fund across different private equity (PE) funds in India. Both India and China are primary focus markets for the FoF, which is in a fund-raising mode.
Policy watch: Singh says most PE funds today need to tighten their basic operations and processes and have a clear exit policy.
Siguler Guff, which set up its India office last year and hired Praneet Singh, who was earlier with Piramal Healthcare, as its managing director, has exposure to many PE funds with a proven track record. In India, it is already one of the most active FoFs, which invest in other PE funds rather than directly in companies.
At a time when access to capital decides the future of PE industry, this institutional investor (or limited partner, or LP) is rooting for Indian PE fund managers developing a distinct investing strategy and tightening their basic processes.
On the industry trend of PE funds facing the exit of key professionals (Rajesh Khanna quit Warburg Pincus Llc and Subbu Subramaniam left Baring Private Equity Partners (India) Ltd in recent times), Singh says personality-driven funds might not find it difficult to raise funds owing to their past networks, but how long they can sustain a strong team is still doubtful. Edited excerpts:
What has been your allocation in India till now?
About 20-30% of our Bric fund is typically devoted to India-specific funds. We like to partner with funds with strong management teams, unique strategy, great execution capabilities and a proven track record.
While there have been exceptions, we seldom invest in a first-time fund. We have focused mainly on funds deploying growth capital and not really looked at early-stage investing at this point.
What kind of funds have you backed till now?
We have invested mostly in high-quality, mid-sized, sector-agnostic, growth-investing PE funds. We also have positions in two sectoral funds: IDFC Private Equity (infrastructure) and Hiref (HDFC International Real Estate Fund).
How much of an advantage is sector focus?
There are only a few sectors deep enough for specialization today to sustain specialized investment teams. We believe infrastructure and real estate are two such sectors deep and different enough to merit specialization.
What are the changes you would want to see in Indian PE fund managers?
Given a higher level of competition (among PE funds and public markets), and also the continued education of promoters (through investment banks), most PE funds today need to tighten their basic operations and processes. The teams have to work harder to understand, analyse and critically examine their work at all the levels—deal sourcing, due diligence, being conservative on entry valuations, assessing companies for both strategy as well as operating rigour, and a clear exit policy. Also, they will need to be more realistic about return expectations and time lines. Easy exits in two-three years may be a thing of the past. Promoters and investment bankers have become very refined.
How does it affect institutional investors when senior members of a well-run fund leave?
Senior departures will happen among funds, especially in an industry where talent is scarce. How you deal with it is important and this is where the role of the leader in the fund becomes important. Ideally, he should use any such an event to make the fund organization stronger.
We as LPs would expect the leader to manage the transition well, infuse fresh talent periodically and ensure that they build a strong, robust organization, instead of relying too much on one or two individuals.
Fund-raising would not be a challenge for people with a strong track record given their past networks. However, their long-term success would depend strongly on whether they can demonstrate the creation of a strong team and processes with some track record. It should not be a one-man show.
What are your thoughts on PE funds hiving themselves off parent entities (mostly banks)?
It is always better to have an independent PE team that LPs can back in an objective manner. The PE business is very different from a normal banking operation.
While you could always leverage the strengths of the parent entity, the team has to be independent.
Content from VCCircle.