Mukesh Ambani’s private equity fund takes shape

Mukesh Ambani’s private equity fund takes shape

Mumbai: Giving shape to his plans to launch a private equity (PE) fund, Mukesh Ambani, chairman of India’s most valuable company Reliance Industries Ltd (RIL), has contributed $200-250 million (Rs 902-1,127.5 crore) in proprietary funding to jump start investments, according to three persons familiar with the development.

Ambani, 53, India’s richest man, has appointed Vivek Gupta, former managing director of consulting firm AT Kearney in India, to lead the venture, said the persons, one of whom is directly involved in the venture. None of the three persons wanted to be identified. Gupta could not be contacted immediately.

An investment committee has also been formed to evaluate and approve potential investments. Apart from Ambani, the committee comprises Raghunath Anant Mashelkar, scientist and a director on the RIL board, and Ambani’s trusted aide and key RIL executive Manoj Modi.

The person directly involved in the venture confirmed that Gupta would be leading the venture and said the new fund would begin by investing in some venture capital-style deals that typically fund early-stage companies with promise for growth. “However, nothing has been cast in stone yet," he said.

The fund would focus on companies that are working on innovative ideas, another person familiar with the development added. Ambani and Mashelkar are also members of the so-called innovation council, which drives research and development at RIL.

RIL declined to comment.

“With Mukesh Ambani’s own investment, the fund would initially operate as a family office and eventually they plan to raise more money," said the head of a large PE fund familiar with the development.

A family office is a private company that manages investments and trusts for a single wealthy family. Ambani is India’s wealthiest person with a net worth of $27 billion, according to Forbes magazine in September. Forbes has also forecast that Ambani would be the richest person in the world by 2014 with a net worth of $62 billion.

With this fund, Ambani joins the likes of Wipro Ltd’s chairman Azim Premji, who runs the private investment firm Azim Premji Investments, through his family office as well as the not-for-profit Azim Premji Foundation. N.R. Narayana Murthy, founder-chairman of Infosys Technologies Ltd, also has a venture capital fund called Catamaran that makes investments in early-stage companies across sectors such healthcare, retail, technology and microfinance.

RIL has also initiated the process of hiring the team for its new PE venture, including investment analysts, by appointing human resource consultants. One of the consultants to be appointed is Delhi-based Ikya Human Capital Solutions Pvt. Ltd, the persons familiar with the development said.

Ajit Isaac, managing director and chief executive officer of Ikya, declined to comment for this story.

Following the termination in May of a non-compete agreement with younger brother Anil Ambani’s Reliance-Anil Dhirubhai Ambani Group (R-Adag), Mukesh Ambani has been looking to enter sectors that had been earlier out of bounds for RIL due to R-Adag’s presence in them.

R-Adag operates a PE firm, Reliance Equity Advisors (India) Ltd, and a venture capital firm called Reliance Venture Asset Management Ltd.

The Economic Times reported in August that RIL could team up with global hedge fund, DE Shaw and Co. Lp, to launch a $700-800 million infrastructure fund in India.

Several corporate-backed PE funds have been launched in India over the past two years. Aditya Birla Capital Advisors Pvt. Ltd, the PE arm of Aditya Birla Group, raised $200 million from domestic investors in February. Tata Capital Ltd, the non-banking financial services unit of the Tata group, plans to raise $1 billion for its PE unit by December 2011. The company has already received commitments from domestic investors for $200 million and will raise the rest from international investors.

Foreign investors, known as limited partners in PE parlance, typically prefer investing in independent PE funds as compared with institutional- or corporate-backed PE funds.

“The challenges for a corporate-backed PE fund are two-fold. Investors are a bit sceptical of putting in money in such funds as their investment decisions may be clouded by the corporate entity and not entirely independent," said a mergers and acquisitions consultant with an international audit and consulting firm.

“Also, companies are at times wary of accepting equity from them as their business processes and intellectual property stands exposed to them," said the consultant, who didn’t want to be named.

PEI Media, a financial media group dedicated to global alternative assets, conducted a survey during its annual PE conference in Mumbai recently. Around 47% of the respondents said the predominant Indian PE fund model in 2020 would be independent while 14% thought it would be institution-backed. Only 1% voted for the captive model—a reference to the PE arms of business conglomerates.