Buy low, sell high not sustainable PE strategy: Blackstone’s Dixit

India’s private equity market has turned so competitive that simply ‘buying low’ and ‘selling high’ is no longer a sustainable strategy for an investment company, said Amit Dixit, head of Asia, private equity, Blackstone.

“(Instead) what’s really sustainable is you buy what you can build or rather, do not buy what you cannot build, and for building you have to employ multiple strategies,” said Dixit, while delivering the keynote address at VC Circle Limited Partners Summit 2022 on Friday.

Dixit’s comments come amid soaring private market valuations over the past year that have made it challenging for most private equity (PE) firms to ‘buy low’ and ‘sell high’.

Private equity and venture capital funds invested more than $77 billion in India in 2021, about 62% more than in 2020, underscoring intense competition in the Indian PE space.

Dixit said that to build, Blackstone looks at investing in companies that have a strong management team that can align operations and grow revenue through multiple strategies, either organically or inorganically.

“If you get the management right, if you get the alignment right, you are off to a very good start. It is probably the single biggest intervention a private equity firm can make,” he said.

Blackstone has hired more than 50 directors for multiple C-suite positions across its portfolio companies, Dixit said.

The company has also completed 20 acquisitions over the last three years in Asia.

Dixit underlined that the Indian PE industry is maturing, and it is a very exciting market to harvest investments as opposed to five years ago, when a limited partner (LP) would say that the biggest issue with private equity in Asia was to take out money from the region.

He highlighted that as private equity investors, having multiple exit options such as strategic sales, sponsor sale, dividend recapitalization, initial public offering, and secondary market is important.

“The window can be very short. So, it’s important to be very strategic around your exit optionality and I think that is something we have done quite well across our Asian portfolio and across our Indian portfolio,” added Dixit.

Blackstone’s first Asia fund—which invested in companies such as Sona BLW Precision Forgings Ltd (Sona Comstar), TaskUs Inc., Mphasis Ltd and Aadhar Housing Finance Ltd—multiplied its invested capital by 3.9 times, VCCircle reported in October. The PE firm also sold its over-30% stake in Aakash Educational Services Ltd in India to Byju’s in April last year, in a deal that valued Aakash at almost $1 billion.

Dixit said the Asian private equity market has the potential to deliver outsized returns in the coming years despite global volatility, persistent high inflation across economies and hardening interest rates.

“Overall, you are seeing an environment which is very different from 2021. We think it’s a very exciting environment for investing. Because this kind of volatility presents opportunities,” said Dixit.

Blackstone has taken initiatives in decarbonization, governance and diversity to help its portfolio companies become better in terms of ESG (environmental, social governance) standards.

Outlining Blackstone’s investment themes in Asia, Dixit said that the firm will be investing more in healthcare, life sciences, cloud migration and enterprise automation, travel, digital consumer and energy transition.

He noted that the theme around technology transformation is important to the firm. “Technology is no longer a vertical—technology is a horizontal, it impacts each and every business. And that is something we have tried to understand and create a repeatable model across our companies,” he added.