NewQuest Capital Partners is Asia’s first private equity (PE) fund with a focus on secondary transactions. The fund, which buys portfolios from existing investors, has so far secured four deals in India. In the current situation, where PE exits through initial public offerings and strategic sales seem difficult, NewQuest plans to later reap a windfall by signing more secondary deals. Amit Gupta, partner and chief operating officer of NewQuest Group, speaks to Reghu Balakrishnan on the secondary deal market, as well as its plans in India. Edited excerpts:
What’s NewQuest’s operation model?
NewQuest helps financial investors with customised liquidity solutions. We buy either single or pools of assets from current owners. This helps the sellers manage their portfolios effectively and at the same time drives liquidity for their LPs (limited partners). We then partner with investee companies to help them achieve their business plans and provide follow-up investments as and when appropriate.
What’s the difference between NewQuest and other funds that do secondary deals?
We are the only pan-Asian direct secondary player operating today. Most funds active in the secondary space in the region are fund of funds. Unlike the fund of funds, we do not buy secondary LP stakes but purchase direct positions from current managers. In fact, we often complement fund of funds offerings, as those operating in the secondary space generally need a GP (general partner) like us to manage positions for them.
What are the advantages of running an exclusive secondary transaction fund?
Being a focused direct secondary player allows us to be a very credible counterparty to investors seeking bespoke liquidity solutions. Our flexible approach to customise transactions, based on the liquidity objectives of the seller and capital needs of the underlying portfolio companies, help sellers refocus on core investment and portfolio management activities.
How’s the Indian market on secondary PE deals?
Over the last decade, India, like other Asian markets, has only experienced one cycle of minority growth transactions. As that first cycle is nearing its end, and the most recent cycle begins, the direct secondary market is likely to pick up. We are now seeing greater interest from both sellers and buyers than before. While single-asset direct secondary transactions have been more prevalent in the past, we believe multi-asset deals will increase as PE firms grow and start looking at their portfolios more holistically.
The Indian market remains tough for PE exits. Do funds for secondary deals have significance?
In the current scenario, lack of capital markets is the main reason for most deals we are seeing. I believe this is because most PE investments were made with an IPO exit as the only liquidity consideration. We expect this to change. Multiple exit opportunities will be considered by primary investors at the time of investment — including trade sale, secondary, strategic sale, and IPO. Even if the capital markets rebound, given the volume of deal flow invested in India over the past five-seven years, direct secondary transactions will likely help augment those exits, as not all companies will be able to achieve their initial exit horizons. Currently, secondary deals in India are less than 10 per cent of total exits. We believe this can go up to mid-teens in three years.
How big is your fund and what percentage will be in India?
Our first fund raised in 2011 was $400 million. We do not have any country-specific strategy. We can deploy a significant amount of funds in India. In the long term, we estimate 30-35 per cent of our business will come from India. We prefer to do deals where the investment size amounts are $10-50 mn in a company. While we consider deals across all sectors except real estate, we see concentration in the financial services, infrastructure and technology segments.
Also Read
How many deals were done in India and are in the pipeline?
We presently have four companies remaining in our India portfolio. We are finalising one investment and conducting due diligence on few others. Our pipeline is quite strong given our recent entry into the market.
How do you see 2013? Are you expecting more deals to be done?
Based on our pipeline, we expect 2013 to be a robust year for direct secondaries transactions and that we could see even larger volumes in 2014-16.