JJ: I had spent a year trying to understand the Indian market in 2004. And as I told you at the time, I knew that our timing was right, that India was about to bloom. Indian domestic funds and private equity funds were trying to expand beyond their traditional domestic LPs to raise funds internationally and we were there in the midst of that. I had to re-think my original concept; the idea that we would go into India to collaborate with GPs to invest in India because at the time, there were exactly 13 domestic Indian private equity firms and India is vast. Each of that small group was regional [in its investment outlook]. GPs in Bangalore focused on the Southern market. GPs based in Mumbai, were generic, whoever walked through their door, they would see. GPs in Delhi focused on the Northern Market. I saw that if we were to partner with a single firm we would not realize the concept of becoming a truly national investor in India. I saw that to be involved at a national level, a
fund of funds approach would be better.
(On Evolvence India Holdings which raised $65 million on the London AIM recently)
JJ: Three months ago we said that we wanted to create this permanent pool of capital; to create and list a structure in a public market and raise some amount of capital. We discussed how much we should raise for a private equity opportunity. We knew already, based on other PE firm public offerings that these stocks initially trade at a discount over the first year to two years because of the J curve effect of the portfolio. The money has to be deployed and then by the time it’s deployed the fees have eaten up so much of the capital base that the stock really trades at a discount.
We didn’t want the uncomfortable period in which our investors who have written checks for us are holding a discounted stock. We felt it was important to build the portfolio to a certain extent and then to raise a public vehicle. We did that and evaluated the portfolio that we had built for the Evolvence India Fund in October last year, [at which point] we knew that we’ be closing the fund by March 31st.
T&I: Which puts us where?
JJ: By December last year we knew that we had a window of about three months before we would close the fund, to raise the permanent pool of capital as a listed structure to help the India funds platform have more stability and a permanent fund basis.
From the fund of funds perspective, we believe we can deploy between $100 to $120
million per year; that this level of commitments is prudent and achievable without having any problems. So last year we deployed about $120 million and I think we’ll continue at that rate, deploying that amount of capital each year, about $100 million over the next two or three years. After that we’ll stop and take stock and depending on prevailing market conditions we’ll either increase or reduce the amount of annual commitments. We’re doing that with a team of ten people, based in Delhi for the Fund of Funds and another three in Hyderabad.
You can download the entire interview transcript here.
Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports.