Private equity funds turn hotspots

What makes private equity funds a hot destination for investment bankers and mutual fund managers such as Nikhil Khattau, Rajeev Gupta, Udayan Bose and U R Bhatt? Whatever be the answers these men on move give, the reason is that this is the most happening sector at present.

Their's have been some of the most high-profile moves recently. Udayan Bose snapped ties with global investment bank Lazard to set up an investment company.

Nikhil Khattau, former CEO and promoter of Sun F&C Mutual Fund, has set up a private equity fund, Crossover.

Rajeev Gupta is leaving DSP Merrill Lynch to head the buy-out team of the US giant Carlyle Group. U R Bhatt has left Jardine Flemming to set up his own fund.

Gupta said he was attracted by the intellectual appeal of the new assignment since it would give him a chance to implement his own decision. He was instrumental in sealing a handful of innovative acquisition deals of the Tatas and the Aditya Birla group.

"An investment banker is an outside advisor who can guide a company to invest or acquire some firm. But as the head of a buyout team, which is my current assignment, I will be responsible for taking decisions and implementing it as well. It's far more challenging," Gupta said.

Shankar Narayanan heads the Indian operations for the Carlyle Group which has invested $50 million in India since 2003.

Udyan Bose's investment company would invest primarily in the "turn-around stories".

"India is looking extremely attractive now and I wish to participate in what I think will be a massive growth over next 10 years," Bose had said. He had a 35 per cent stake in Lazard India.

Khattau's Crossover Fund has invested $5 million (nearly Rs 2.15 crore) in the Pune-based Indo Schottle Auto Parts last week. The fund has the rights to convert this investment into equity. He intends to invest in the range of $5-10 million per deal in mid-stage businesses.

Sources said joining private equity funds was a logical extension for them as they had been following the domestic equity markets for long. At the same time, they know that the opportunity here is big, the sources added.

According to the market estimates, private equity funds "" domestic as well as foreign "" had chipped in $1.3 billion in 2004. This year, these funds have invested about $500 million in 32 equity deals. At the same time, they have sold off their stakes worth $1.2 billion in various companies.

Last year's largest investment came from General Atlantic and Oak Hill Capital which collectively bought 60 per cent of the New Delhi-based outsourcing company GE Capital International Services (GECIS) from General Electric Co for $500 million. This year, Warburg Pincus tops the chart by selling off its 12 per cent stake in Bharti for $1.1 billion.

"Too many private equity funds are chasing the same bouquet of Indian companies. There is a possibility that some funds may ease out in future," said an industry source.

Major private equity funds active in India are the Blackstone Group of the US, Carlyle Group and General Atlantic Partners, Warburg Pincus, Britain's Actis Partners and the Singapore government-owned Temasek Holdings. Local firms such as ICICI Venture Funds Management and Kotak are also stepping up investments.