Investcorp eyes India AUM of $5 bn in five years

Global investor Investcorp, which manages $50 billion in assets, is ready to increase investment activity in India, as it “stands out” from other markets, executive chairman Mohammed Mahfoodh Alardhi said. Currently, less than 2% of its global assets under management is in India.

“The idea is to take it to 5% of the global assets or $5 billion in the next five years,” Alardhi said in an interview. The firm has invested $800 million in India. Its portfolio firms include Wingreens, Xpressbees, Wakefit, and FreshToHome, among others. Of this, nearly $200 million is in, what the firm calls, “real assets investing”.

Broadly, Investcorp follows real estate investments for themes under this strategy, and has been bullish on warehousing and edu-infra sectors.

Alardhi, a former fighter pilot, rose through the ranks and served as Chief of the Royal Air Force of Oman before shifting careers after retirement to become the executive chairman of Investcorp in 2015. It took him only three years to grow the company’s assets under management from $10 billion to $25 billion. The firm’s AUM has doubled to $50 billion three years later. The AUM target in mind is to reach the goal of $100 billion.

Asked to compare the investment world of a developed market like the US with that of India, Alardhi, whose firm has fashion brands such as Gucci and Tiffanys in the portfolio said: “The US economy is really a great example for everyone—it really is an example of free enterprise and unlocking of ‘animal spirits’.”

In that, a lot of what’s happened in the US should work in India. I think India is doing a lot of this in the transformation that is happening. The innovation that has happened in the US is something that would work in India. The number of great engineers that you have across the country, the hubs of startups, the focus on, entrepreneurship,” Alardhi explained.

According to Rishi Kapoor, co-chief executive officer of Investcorp, the firm is in the middle of raising a new India-dedicated private equity fund, its third for the region so far. “The macro is certainly tougher. From a fundraising perspective, for a variety of reasons such as the interest rates have shot up over a relatively very short period of time in the Western Hemisphere, both in the US, and Europe. And that is creating macro uncertainty, compounded by the fact that a lot of people expect consequentially an economic slowdown, compounded by the geopolitical overhang, whether it’s Russia, Ukraine, whether it’s the Middle East, the recent outbreak, or even China considerations. So, all of that is having a bit of a dampening effect on investor appetite for new capital deployment. And consequently, the fundraising environment has been tough. In the middle of all of that, you know, gloomy kind of backdrop, India stands out as one of the very few shiny spots as a destination for capital,” Kapoor said.

The firm, which is backed by Mubadala raised $150 million fund for investing in India in 2019. It is eyeing a $500 million fund now, sources said. The firm however refused to comment on the size citing regulatory challenges.

With the new fund in place and the target of deploying almost $5 billion in India, the firm is likely to ramp up both its pace of investments and the cheque sizes. It is also likely to do more buyout deals in the region, giving it control over businesses in sectors that are recession-proof.

The firm is looking to raise a dedicated real assets fund for the Indian market in the future. “It is something that we are working on. We are yet to finalise details,” said Gaurav Sharma, partner and head of private equity investing in India.

Within the edu-infra theme, the firm is likely to pursue residential schooling, student residents and K12 schools. In the warehousing space, though it has invested in NDR Warehousing, a warehouse development and operating platform, it is likely to double down on the space. “We are in the process of coming up with the first warehousing InViT,” Sharma added.

Gaza-Israel conflict

Alardhi is in India at a time when the Arab world is in turmoil because of the war in the Middle East. He hopes peace will return to his neighbourhood soon, though he doesn’t want to guess when the war will end. Instead, he pointed out that the war between Ukraine and Russia is yet to end.

He says the markets have remained largely unaffected despite the ongoing Gaza-Israel conflict and other crises worldwide. He also noted that the Gulf region is experiencing a significant influx of investors.

“So far, what we have seen in the GCC region markets is that there is not much effect of the conflict on markets, because the Gulf is where we operate in a big way. People will always be cautious in how this develops, but so far, I think this situation looks manageable,” Alardhi said.

“We have to navigate geopolitics, navigate high-interest rates, inflation, sustainability issues, all that kind of thing. The firm in its over 40 years history now has really gotten experience in this way,” he explained. Alardhi, a newspaper columnist back home, and the author of three books so far, said: “Our businesses is investing. and we invest for the long term. We continue to look for opportunities in all the markets that we are in. In the short term, people want caution, they want to see more certainty. But i think everyone is convinced about the long term in most of the markets that we deal with.

Alardhi’s colleague, Kapoor concurs with this view. Suave investors such as Investcorp believe that uncertainties bring in opportunities. “The most impactful trend that has emerged, particularly in light of, the Ukraine-Russia crisis, the pandemic, is the nearshoring and building resilience into supply chains,” Kapoor said.

“In the 4 decades of being in this business, you develop a muscle memory for being able to look past what presently may seem like a dominating piece of not just news, but either economic or geopolitical overheating, and look into long term secular trends that are likely to shape the economic landscape over multiple decades,” he added.