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General Atlantic’s India managing director Sandeep Naik. The PE has invested about $1.7 billion in India till date. Photo: Abhijit Bhatlekar/Mint
General Atlantic’s India managing director Sandeep Naik. The PE has invested about $1.7 billion in India till date. Photo: Abhijit Bhatlekar/Mint

General Atlantic banks on financial services sector to boost returns

US-based PE firm buys stake in IIFL Wealth Management amid buzz that financial assets will draw growing savings in India

Mumbai: US-based private equity (PE) firm General Atlantic LLC (GA) is stepping up its presence in India’s financial services sector with more investments, after making a tidy profit from its investment in IndusInd Bank Ltd last year.

On Saturday, General Atlantic agreed to buy a 21.61% stake in IIFL Wealth Management Ltd, the wealth management unit of IIFL Holdings Ltd (formerly India Infoline Ltd) for 1,122.34 crore, reflecting its faith in the non-banking financial companies (NBFC) space in India.

To be sure, out of General Atlantic’s seven portfolio companies in India, two are into financial services—Hinduja Group-promoted IndusInd Bank and National Stock Exchange Ltd. The rest is a diversified portfolio of CitiusTech Healthcare Technology Services Pvt. Ltd, House of Anita Dongre, Asian Genco Pte Ltd, MuSigma and IBS Software Services.

Till date, General Atlantic has invested about $1.7 billion in India.

“For GA, financial services are one of the key sectors we globally invest in. If you can identify and back the right entrepreneur/management team in financial services, you can create large scale companies. We see a huge potential in this sector in India, given the positive macro outlook, and IIFL Wealth is one such opportunity we identified and are fortunate to be a part of," said Sandeep Naik, managing director, India, General Atlantic.

In the recent past, several leading PE firms have invested heavily in listed entities, especially in the NBFC sector.

Last month, private equity firm Bain Capital bought close to a 10% stake in L&T Finance Holdings Ltd, an arm of Larsen and Toubro Ltd (L&T), for a little over 1,300 crore in two separate transactions. In June, about 10% stake in Shriram City Union Finance Ltd, the retail-focused NBFC of the Shriram Group, was acquired by Piramal Enterprises Ltd for 790 crore. The US-based PE firm, Apax Partners Llp, had also acquired a 20.37% stake in Shriram City Union in May from TPG Capital for 2,366.27 crore.

The NBFC space is buzzing on the expectation that financial savings in India will rise and be channelized into financial rather than physical assets.

In a report in May 2015, Morgan Stanley research estimated Indian households will invest $300 billion in the local equity markets over the next 10 years versus the $50 billion and $134 billion households and financial institutional investors invested over the previous 10 years.

With regulations and demographics more favourable for investors, investor education having increased, and a less risk-averse population, the qualitative environment favours equity investing, Morgan Stanley said.

“Private equity (firms) look at investments in scaled and well-run financial services businesses as a good proxy for the India growth story. However, there are only a handful of scaled financial services businesses in India," said Sanjeev Krishan, leader (private equity and transactions) at PricewaterhouseCoopers Pvt. Ltd. IIFL Wealth, one such firm, has a wealth management platform, advisory and distribution capabilities and manages $12 billion of assets for over 8,600 clients through its 150-plus relationship managers. IIFL Wealth was founded in 2008 by IIFL Holdings with Karan Bhagat, Yatin Shah and Amit Shah.

The company was conceived with the vision of creating wealth management solutions to provide investment products and services customized for high net-worth Indian families.

“It is with this continued commitment to our customers that we welcome General Atlantic as a strategic partner for our next phase of growth. As a leading investor with deep expertise in financial services and wealth management, General Atlantic is well-aligned with our mission and will help take IIFL Wealth to the next level through expanded products and services," Nirmal Jain, founder and chairman, IIFL Holdings said.

The proposed transaction will provide IIFL Wealth with additional capital for its business operations and general corporate purposes as well as for growth of the business.

For IIFL Holdings, this is the second deal in less than six months.

In July this year, Fairfax India Holdings said it would launch an open offer to buy a 26% stake in IIFL Holdings. The open offer was worth more than 1,600 crore. IIFL founder Jain has clarified that the promoters have no plans to exit the company.

The Carlyle Group plans to tender its shares in IIFL Holdings Ltd in an open offer which will yield a three-fold gain on its four-year-old investment, Mint reported in July. The fund had bought the stake in the financial services firm in October 2011. At the time, Mint reported that the deal cost Carlyle about $38 million ( 187 crore). At Fairfax India’s open-offer price of 195 per share, Carlyle’s stake will fetch 560 crore.

In 2014, General Atlantic made one of the largest exits, selling half its stake in IndusInd Bank for $125 million. The firm reaped twice the return on its investment in IndusInd Bank, where it currently holds a 2.02% stake.

PricewaterhouseCoopers’ Krishan said there are only a handful of scaled wealth management businesses with a pan-India distribution network and, hence, this is the space which has been witnessing a substantive growth in recent times.

According to a June 2015 McKinsey report titled Indian Private Equity: Route to Resurgence, financial services, where 10% of total PE investments took place in 2009-13, witnessed a revenue growth of 90% and profit growth (PAT) of 78% during the same period.

Besides IndusInd Bank, General Atlantic made good returns from exiting its Indian portfolios such as Patni Computer Systems Ltd in the past.

In 2011, General Atlantic made about 150% return from its nine-year-old investment in Patni, by selling its 14.6% stake to a consortium of iGate Corp. and private equity firm Apax Partners. The deal had valued Patni at $1.45 billion. In 2002, General Atlantic picked up 17.80% in Patni Computer Systems for $100 million and offloaded a 3.20% stake for $40 million in an open market transaction.

According to people aware of the developments, General Atlantic may invest $1.5-2 billion in the next five years in India.

In July, General Atlantic missed a last-minute opportunity to acquire broking firm Sharekhan Ltd after it lost the bid to French bank BNP Paribas SA, which paid about 2,200 crore, which was 10% more than what PE firms Warburg Pincus LLC and General Atlantic bid.

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