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March 09, 2005

The Hedge Fund alternative

The Economic Times has a news item on how hedge funds are now competing for deals in India with VC and PE firms. While the ET article doesn't mention it, the deal which comes to mind readily is US-based Farralon Capital's investment in stock broking and financial services firm, Indiabulls, which pulled off a successful IPO recently.
Recently, hedge funds have been doing the rounds of investment bankers and private companies looking to invest in unlisted companies. Hedge funds have realised that with just a handful of private equity investors in India, there are a lot of investment opportunities to be tapped among private companies. Moreover, they feel that the potential or returns could be much larger in the private markets, compared to public ones.

Private equity investors admit that hedge funds are sniffing around. Raj Dugar of Carlyle Private Equity Fund says, “Some of the hedge funds have also started doing the rounds, searching for a toe-hold among unlisted companies, a preserve of private equity funds.”

Some industry observers say that with secondary markets at a historic high, hedge funds are looking at new investment options in the country.

Pramod Bhasin, president & CEO, GECIS, which raised funds from private equity investors when GE reduced its holding in the company, says, “We also received some offers from hedge funds when we were doing our evaluation. We could not find any clear value in the capital they were bringing to the table. This does not mean that all private equity funds brought value, but the hedge funds were less capable.”

Arun Natarajan is the Editor of TSJ Media, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of TSJ Media's Venture Intelligence India newsletters and reports.