When Baring Private Equity Partners’ oldest partner Subbu Subramaniam announced his decision to leave the firm, it created a flutter among portfolio firms and questions were asked about the impact of his exit. But Ajeet Singh Karan, who joined the firm as a partner in June, tells Shilpy Sinha that Baring India is one of the oldest firms and an individual’s exit would not impact operations in any manner. The firm has $750 million of assets under management across three funds, including $540 million raised last year. It has made $250 million on an investment of $25-40 million in MphasiS from its first fund, while raising 5 per cent stake in the BPO from open market through its third fund. Excerpts:
How will the exit of Subbu Subramaniam affect Baring India?
He was neither a key man nor a co-founder or a member of the investment committee. Operations are not impacted in any manner. We have a lot of experience that has been built over a period of time - a very balanced mix of sector and functional experts across levels. Rahul Bhasin is the managing partner and has been associated with the company from early days when private equity was at a nascent stage in India and he was a pioneer in this field in more ways than one. There are four other partners, including myself, Munish Dayal, Akhil Awasthi, and SM Sundaram who bring a lot of expertise in scaling up businesses which is a key differentiator for us. I have been personally associated with building Indian operations of several multinationals in India, including Hindustan Lever, Pepsico India and Coca-Cola India.
Is the split among the partners a concern for limited partners?
Baring India has a lot of pedigree and one of the best track records in the industry. The investors in various Baring Funds have subscribed to the philosophy of generating returns by partnering with companies and helping them in the scale-up process with guidance from experienced senior industry people like myself and my colleagues. Subbu was never a key man or a co-founder and his exit in no way has impacted this proposition. Investors remain committed and this development has found no implication on their commitment.
The matter is said to be under arbitration. Will it mean only profit sharing?
I cannot comment on speculative news but Subbu Subramaniam is no longer with the firm and there are no matters pending to be resolved.
Another partner Akhil Awasthi is reported to be leaving the firm. How far is it true?
These rumours are completely unfounded and untrue. He is very much with us. Baring India is one of the oldest firms in the business and we operate on a scale where an individual leaving the organisation does not impact operations in any manner.
Have you invested from your third fund which was raised last year?
We have made initial investments of $50-60 million from our fund in the IT, ITeS and healthcare sectors, where we have a lot of domain knowledge. In addition, we are looking at a healthy deal flow in consumer, BFSI and power sectors which are our other areas of focus.
Has the economic slowdown forced PEs to invest cautiously?
PE investing is a longer-term approach to providing funds and, typically, the calls taken by investors’ factor in growth over business cycles. Long-term investors such as Barings have an average holding period of seven years and have successfully lived through business cycles in India, be it the Asian crisis of 1998 or the dotcom bubble of 2001. They will not get perturbed by the slowdown as it is a natural component of a business cycle. Though there could be some concern for those funds with a shorter fund life. They would like to time the market as opposed to generating returns from fundamentals.
How do you look at investment opportunities now? Are you looking at exits?
India has great potential and the opportunities are huge in the domestic market despite the global meltdown. The investment philosophy in India is still going to be influenced by growth capital based models which in the past was largely part of individual sectors. Going forward, we expect to see greater opportunities emerging from areas where there is a confluence of trends. We take a long-term view on businesses and industries. Over a 10-year period, if we think that there is an opportunity to create a great organisation, we would participate in it. Making new investments is the priority right now.
You are still investing in IT while the entire market is averse to it due to the slowdown in the US market. What are the attractive sectors for PEs at the moment?
Given our domain expertise in the IT sector, we have made our choice accordingly. It might have seemed contrarian but has a well supported rationale at the business level. We see great potential in BFSI, power, healthcare and FMCG sectors and continue to see these as attractive.
By when will you exhaust you existing fund?
Success here is not measured by the pace of deal making but through the quality of output at the end of the process. We expect to utilise the next four-five years for leveraging opportunities in a manner we think would be in the best interest of all the stakeholders.
