London: Gerry Grimstone, chairman of Standard Life Plc., wears three hats.

Apart from heading the Edinburgh-headquartered asset management group, he is also chairman of Candover Investments Plc., one of Europe’s oldest private equity funds, and the India Champion for the UK’s Financial Services Sector Advisory Board—a coordinator between the two governments.

Investment plans: Grimstone says the firm will make two or three quality investments in India, China and Hong Kong, starting small. Tamal Bandyopadhyay / Mint

In a recent interview, Grimstone said Standard Life is keen to raise its stake in the insurance company to 49% and the government should allow that as there is a clear distinction between foreign control and foreign financing.

He said the asset management company, or AMC, has certain property assets that have “turned out to be not as good quality as we thought they would be" and the promoters have found a way of removing those assets from the fund to the benefit of the investors. He said he is also keenly looking for opportunities in the private equity space. Edited excerpts:

The Indian government has not yet cleared the Bill to allow foreign players 49% stake in insurance companies. It must be very frustrating for you.

We were the first life (insurance) company to form a joint venture in India. When we formed the joint venture with HDFC, it was conceived as a 50:50 relationship.

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71c92864-befe-11dd-8c88-000b5dabf613.flv What do you mean by 50:50?

HDFC and Standard Life share the business. I look to Deepak (Parekh) for certain insights and aspects of business and he looks to me for certain insights… We are very much in it together. The original agreement between shareholders had envisaged that we would be able to increase our shareholding to 50:50 as and when the law allows. We are very keen to do that.

It makes good sense to have 50:50 economic interests and I see no difficulty with (it) if India for public policy reasons may want to maintain control of these businesses…

I myself cannot understand the difference between 26% and 49%. If we are allowed to raise our stake, the capital burden of the business will be split more fairly between the two promoters and still HDFC can have control with 51%.

Even with a 26% stake, you are offering management expertise. So why do you need to raise your stake to 49%?

My impression is that in India life assurance promoters are now conscious of the capital requirement that a growing life assurance company has and they will find it helpful if their foreign partners assist in maintaining the capital requirement.

I think it’s also becoming clear that foreign direct investment is more stable and more beneficial than foreign institutional investments. There are huge opportunities in infrastructure and other sectors and it needs capital… My view is if you can draw the capital from outside the country, why not do that?

I am very pleased that the cabinet has decided to push forward with the proposal and I think it is unlikely to be going to be passed in the coming session (of Parliament) purely because of time but I think it’s quite a watershed to have at least the political opinion behind it in pushing forward.

I think it’s a win-win situation for India. The control will continue to rest with the local companies while some of the capital will come from the foreign counterparts.

When you say 50:50, actually you mean 51:49. Right?


You have been waiting for seven years for this to happen. Will you get out of the insurance venture if you are not allowed to raise your stake?

I think it’s an anomaly and unfortunately it got caught up in politics. It’s a matter for Indians and not for me to comment on politics but it’s unfortunate that it has happened. I think it’s being misunderstood as intellectually you can draw a clear distinction between foreign control and foreign financing. If India wishes this to be under Indian control, why won’t it allow foreign financing?

Are you happy with the growth in business? Isn’t HDFC Standard Life Insurance very conservative?

It’s true that both Standard Life and HDFC are conservative companies. In a way it’s our strength. At the moment, we are the most strongly capitalized among the UK life assurance companies... Our persistency rate is better than anybody else in the Indian life assurance industry. We think we provide better training to our staff than other people and we think we are running a high-quality business...

What’s the plan on the insurance firm’s initial public offering (IPO)?

We will take it to the market but you won’t see that unless the market conditions improve. We were thinking this in 2010 but it could happen in 2009.

Will you dilute your stake through the IPO?

We will be keen to maintain our stake. We see India as an extremely important business for us.

I believe your AMC has compromised on the quality of assets for growth.

Like other asset management companies in India, we have a triple-A liquidity fund and has a very high market share.

In order to enhance the returns of that fund, you invest in papers that are more complex than treasury bills… The fund has certain property assets owned by Indian property companies and those assets have now turned out to be not as good quality as we thought they would be.

The promoters have found a way of removing those assets from the fund to the benefit of the investors in the fund. We believe these assets are of good quality in the longer term but in order to the preserve the nature of the liquidity fund, we have taken steps to protect the shareholders.

Now that would be a very typical movement of Standard Life and HDFC. We were not obliged to do it. We did not want people to have any worries about the fund. We have substituted some of the assets of the fund which have a longer duration with high-quality short-term assets to make sure that the fund’s liquidity is preserved.

And I think we are one of the few funds in India which have been attracting money in last few days...

By shifting these assets to HDFC’s book, aren’t you being unfair to HDFC shareholders?

We have not announced where we have shifted these assets. We just said that the promoters have taken steps. Also, we are not taking about large sums of money in the context of market capitalization of HDFC and Standard Life. The promoters are acting together to ensure the stability of the fund.

Any plans to hike your stake in the AMC?

It was a 50:50 joint venture and Deepak wanted to have a slightly greater economic interest in it. So we sold 10% to HDFC. There will be an IPO of the AMC at some point but the market conditions are not favourable for that yet. In last three-four months, it has gone up in ranking.

That’s possibly the root of the problem. The AMC became aggressive to capture market share and in the process burnt its fingers…

I would challenge the “burn your finger" bit. There is a difference between an asset which you’re quite sure that will be worth Rs100 in 18 months’ time but because you are marking to market, may be worth Rs85 or Rs90 now. If you face redemptions, you are faced with two choices—you redeem the asset at Rs85 and, in this case, people who are taking money out suffer. Or, the promoters take the responsibility and they tell themselves that the asset is worth Rs100 and it will fetch that money in next 18 months and we will take that away from the fund so that customers do not have to suffer.

We have done that. We want to be seen that this is the best place to put your money. In the longer term, you will get more benefit.

Post-IPO, will you dilute your stake?

Generally speaking, we have not walked through the fine print of the IPO. We want to maintain or increase our exposure to India. As a major international financial services company, we would like more exposure to India through primarily raising stakes in the existing ventures. We are also considering to set up an actuarial service centre in India. Standard Life will have a training school for actuaries to provide actuarial services to Standard Life in Edinburgh.

We are also doing health insurance under the life insurance company.

You seem to be wedded to HDFC. In the financial sector you don’t necessarily need to be monogamous…

In marriage, one doesn’t need to be monogamous but many people find it the most pleasurable way of living, especially if one is very happy with one’s wife. We have a very strong and close relationship with HDFC and that’s why the company has done so well. Both shareholders have decided to take a more active role in the management of the life insurance company.

Aren’t you late in entering the private equity space in India?

You must remember that some of the existing people have lost a lot of money.

I think our timing in India is fantastic. This is a very good time to look to buy businesses in India. A couple of years ago, we decided to do business in Asia. We have a team of six people in Hong Kong and we have recruited Harsha Raghavan from Goldman Sachs for our Mumbai operations. Our plan understand the market first. We will then make some investments, using our own funds from our own balance sheet and hopefully those investments will be successful and we will then move to raise third-party funds. There is no money which a private equity fund looks after more carefully than its own money.

How much money you want to invest?

That will depend on the opportunities. We will make two or three good quality investments in India, China and Hong Kong. We will start small and within 18 months to two years, once those businesses are successful, there will be time to go for fund raising. It can happen in 2010 or 2011.

When do we see the first investment?

When Harsha and his team identify the first company. He is close to do(ing) that. He has some interesting ideas.

How are you different?

Candover runs an unusual business in the private equity world. We have been in the business for almost 27 years now and that makes us one of the oldest private equity funds in the world. We are a listed entity from the first day and, as you know, listed entities have degrees of governance and transparency. We love to think that we are the most consistent performers among the European private equity houses.

Like all private equity companies, we look for solid cash flow and good management. We are very operational company. We tend to make our money not through financial engineering but through operational improvement.

The other area in which we are very interested is helping Indian companies to acquire companies in Europe and the rest of the world. We are looking for some cross-border deals out of India.

How will that work?

We will both put our money in. We will work closely with managements—not over-aggressive in leverage. We will use our skills to allow companies to make acquisitions; improve their operations.

Your areas of interest?

Consumer services, oil and gas, particularly offshore services such as drilling, and leisure will make good money. We will look for both listed and unlisted entities.

Tamal Bandyopadhyay was in London at the invitation of the City of London Corporation.