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PE funds struggle to retain talent

PE funds struggle to retain talent

Mumbai: As the number of private equity (PE) funds and investment opportunities rise in India, many global funds operating in the country are struggling to retain their best fund managers as they seek better prospects in smaller funds.

After Vinayak Shenvi, a senior investment professional at Citi Venture Capital International, left the firm last month to join Exponentia Capital as a partner, Manu Sahni, a vice-president at Citi Venture is set to join Shenvi as principal. P.R. Srinivasan, former head of Citi Venture and founder of Exponentia Capital, is currently raising a $400 million fund.

Srinivasan confirmed the development but declined to give further details as Exponentia is in the process of raising funds.

Since Ajay Relan quit as the India head of Citi Venture in 2008, the fund has seen a churn in its India team with many senior fund managers including Jayanta Basu and Vivek Chhachhi joining Relan. A mail sent to Citi Venture on Tuesday remained unanswered.

The trend is only growing. Sequoia Capital India and Warburg Pincus India Pvt. Ltd are some of the other funds that have seen people quitting to join smaller funds.

In February, the four founding partners of Sequoia Capital India Advisors Pvt. Ltd—Sumir Chadha, K.P. Balaraj, S.K. Jain and Sandeep Singhal—decided to quit to start their own fund called WestBridge Capital Partners.

In March last year, Rajesh Khanna, managing director of Warburg Pincus India, stepped down to start his own fund—Arka Capital.

The rapid turnover of employees can disrupt the flow of transactions, at least in the short term, say experts.

“People leaving will cause a short-term impact, especially if the new team has little experience or no India experience," said Sunit Mehra, managing director at Hunt Partners, an executive search consultant.

Employee churn in established PE funds may only get worse as more funds enter the Indian market.

“These kind of movements or disruptions are not seen in developed markets where people tend to stay with a fund for a long time. In emerging markets, as the opportunities increase people tend to move," says Anjali Bansal, managing director, India, at executive search consulting firm Spencer Stuart, Inc.

Bansal expects more movement as new funds are formed, more global funds enter the market and also because the existing funds are expanding their teams.

About 120 PE funds, seeking to raise approximately $34 billion in 2011, are currently on the road, according to a May report by Bain & Co. and the Indian Venture Capital Association.

Some PE funds see the employee churn as a result of management transition, while others say it’s a natural progression.

“We see this as a management transition and not a churn. It has been business as usual at Sequoia Capital India in the last six months since the management transition." said Abhay Pandey, managing director at Sequoia Capital India.

According to Pandey, one of the biggest challenge in retaining talent at global funds is that while the global fund has the advantage of a strong network and access to learnings from partners in other markets, some of them suffer from lack of autonomy and poor incentive structures.

“At Sequoia Capital, I think we have addressed this," Pandey said. “Our team in India has access to everything that our strong global network has to offer and also has the advantage of operational control being local. Our incentive structures are designed to make our team members work as partners and not employees,"

Things may only get tougher for global funds to recruit an India team, according to Vikram Utamsingh, executive director and head, private equity, at KPMG India Pvt. Ltd. “Today even limited partners will question these funds about team stability. They want to know that if there has been a churn in the team in India then what is the quality of the current team."

Niten Malhan, managing director of Warburg Pincus India, said, “For any mature organization, it is part of natural progression to expect some turnover."

“During the past few years, the number of professionals in India has actually increased to support our India activities; India being one of the highest growth areas in Asia has been an important investment destination for Warburg Pincus."

Deals India, published jointly by Mint, Dow Jones Newswires and The Wall Street Journal, is a one-stop destination for investment professionals following deal flow, deals news, private equity and venture-capital activity in India.


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