Fund also expects to offer fivefold return from India investments made from fund II in 2005-07
Mumbai: Multi-stage investment firm SAIF Partners is set to return $200 million to its investors (limited partners, or LPs) this year, at a time when the Indian private equity (PE) industry is struggling to offer returns through profitable exits.
The fund also expects to offer a fivefold return from India investments made from fund II in 2005-07 and is set to make its ninth exit next month.
The benchmark of most LPs and funds is to earn a multiple of 3x on an investment. In India, generally, PE firms have offered returns of 2.5x to 2.8x to their investors. In its first fund, from which investments were made in 2002-2005, SAIF Partners had offered 4x returns, making it one of the few funds in India to offer returns above investors’ expectations.
SAIF Partners started investing in India in 2002 with a strong focus on late-stage deals. Later, it became stage-agnostic and today writes cheques ranging from $500,000 to $100 million. It has also incubated two firms.
“One key reason for this is that India is not a huge market in terms of great companies with great management teams. As a result, it is imperative to have flexibility to be able to invest across stages and sectors," said Ravi Adusumalli, managing partner.
Over the last 10 years, it has invested $600 million across over 32 firms. The fund has already returned $750 million to investors and will offer more returns as recently added portfolio firms reach their investment horizon.
In its latest partial exit, in Just Dial Ltd, the investment firm made 12x returns. SAIF Partners has sold 40% of its 19.72% stake in the public offering in May.
“We have had our share of success and failures in our portfolio. In some cases, companies don’t die, they linger on and we have our share of those also," said Adusumalli. Its other multi-baggers include portfolio firm travel portal MakeMyTrip Ltd, which listed on the Nasdaq in 2010 and could generate returns of about 15x on its investment of $25 million.
While the stage-agnostic investment firm has invested in sectors ranging from education to financial services, consumer services and products to Internet, there are some sectors it is not too keen on.
For example, SAIF Partners does not have any exposure to construction, infrastructure and real estate businesses due to corporate governance issues. “Offline retail has been a difficult sector too. Corporate governance is a very large issue in this sector as well," said Adusumalli.
SAIF Partners remains bullish on the consumer Internet and e-commerce sectors.
“While these companies take longer to scale in India than in other countries, we believe that the opportunity is still very large," said Adusumalli. “It’s not a three-to-five years play, it’s more of a seven-to-10 year cycle. Internet penetration is growing rapidly in India and we believe that this will continue for the foreseeable future.
Meanwhile, the company is in the process of investing in two early stage deals and will infuse $500,000 in two start-ups. The focus is on early stage deals, said Mukul Singhal, vice-president of SAIF Partners, adding that “lots of capital" has been made in early stage, consumer Internet firms. “Look at MakeMyTrip.com, Just Dial…the possibility of making disproportionate capital is much higher in the early stage," Singhal said.
Experts say there are reasons why some funds perform better than others.
“While some may feel that the stage-agnostic approach of funds like SAIF Partners and Sequoia Capital may have worked in their favour, it boils down to the skill sets of the investor in identifying right ideas, handholding and nurturing the companies," said Deepak Srinath, director, Allegro Advisors, an investment bank.
Srinath added that globally it has been noticed that the majority of the returns come from the top 15-20% firms.