The original PE musketeers get ready for their second innings - either doing something different in the same field on their own or charting new careers.
They call him an evangelist for a reason. He might have burnt himself badly at the beginning of the millennium, but in four years he had managed a remarkable turnaround of his private equity (PE) fund Chrys Capital, emerging as a trailblazer in the Indian risk financing.
But, that is not the only reason why Ashish Dhawan is seated among the best fund managers. He, along with Rahul Bhasin of Barings Private Equity, was the first of the independent funds a little more than a decade back, when other peers, like Ajay Relan and Renuka Ramnath, were part of bigger pool of institutional capital such as a Citi, an ICICI Bank or a JP Morgan.
Dhawan’s investment bets were always bold, as he spotted mega trends much before the herd began to chase the fads. In the process, he could also make everyone a lot richer. At times a buccaneer, but mostly a maverick, he played hard, lost some bets on the way, but finally came out blazing.
However, a fortnight ago, he announced his retirement. At 41, with 36 investments and 24 exits, he was phasing himself out over the next 18 months.
Opting out completely is not new in the Indian PE-sphere. This is actually the second time that we see an exodus of the big boys. It had started a decade ago, with a clutch of them leaving the then fledgling space to do their own thing. Some, like former Crisil founder Pradip Shah left JPMorgan’s fund to start his own shop, IndAsia Advisors. His colleague Bharat Kewalramani quit venture capital for an entrepreneurial odyssey, which included making speed boats, among other things. TDICL, the original avatar of ICICI Ventures, also saw Karan Nadkarni and Sabri Nathan drop out, with the latter choosing to teach at IIM-Bangalore. Sanjay Kurkarni, of the 20th Century Finance fame, became a successful banker at IndusInd, while Prakash Karnik quit Jardine Fleming for a career in consulting.
But, Ashish loves his job way too much to just wake up one day and quit. For guys like him, private equity investment is not a profession. He, along with Raj Kondur, his Havard Business School buddy and later co-founder of Chrys Capital, had drawn up the “fund’s business plan as a college project”. It was their own ‘Facebook’ project.
A sudden knee-jerk resignation would have also affected the transition of leadership at Chrys. So, after almost an eight-month internal process that preceded, Ashish Dhawan made it public.
“I am not a dyed-in-the-wool investor like many of my friends. I always wanted to do something more impactful and I had talked about it publicly,” says Dhawan, adding: “The fund has a long tail to it. We are a bunch of guys who have been together for long. So, I am confident that they will take the flag forward. I will hang around, have some fiduciary duties, but won’t have any economic interest in Chrys Capital after 2012.”
So, it is time to focus on education, instead. He and his friends are already working on a university project in Haryana that was flagged off with a one-year, fully-funded fellowship programme in liberal arts for undergraduate students in the capital. A tie-up with the University of Pennsylvania is also in place.
“My plans beyond the university are premature. I will figure it out along the way. But, I want to focus on the K+12 space, as I think that’s a critical gap we have in our education system. I want to do more of strategic planning,” he quips.
However, choosing a non-profit work, especially in the realm of education, is a relatively new initiative, which is now getting attention. Last year, Dhawan’s long-time friend and former colleague and yet another PE pioneer, Luis Miranda, also took a sabbatical from IDFC PE to become the fund’s non-executive chairman. Miranda, too, wants to do something “more relevant”. He says: “Both Ashish and I have had long interactions on the subject. There is a lot to be done in education, or we shall whittle away the demographic dividend.”
Still, Dhawan’s decision has become a talking point. Probably, everyone thought the lucre of his ‘carry’ – the industry jargon for economic incentive – would be too addictive for one of India’s highest income tax payers. Naturally, most of these outsiders are pleasantly surprised.
But, beyond the call of a greater cause lies something more fundamental, and Miranda is candid about it. “When we started with IDFC PE in 2002, nobody believed infrastructure financing could be successful. Now we have proved it can be. So, it is not as exciting as before. There is enough capital today. Also, as all of us became larger, the hands-on involvement got less. The thrill is gone,” he admits.
“The business is highly cyclical and, with every cycle, you’ll have a bunch of guys hanging their boots,” explains Abhay Havaldar, managing director of General Atlantic Partners in India and another industry veteran. “If the economic incentive has been good, you are better off to do something different. As a professional, you are also exposed to great entrepreneurial stories. And, PE fund managers have a different bio-rhythm. So, they too can get inspired to take the plunge,” Havaldar says.
After 2005, the market has also got crowded to the point of hyper-competitiveness. That means often dealing with promoters who want the highest bidder for their company’s stock. That is something many hate to do. “Many funds are desperate to do deals and offer phenomenal terms that become difficult to sustain,” says Rahul Bhasin, managing partner, Barings Private Equity Partners, India.
Raj Kondur, currently a partner at Ascent Capital, travels back in time and concludes: “The first phase of minority growth investing is over. The next phase will be a very different and competitive one. It will need a new set of skills and energy. You will have to roll up your sleeves all over again. Many who have already done this for years and are financially successful may not want to be part of this game anymore.
Many of the funds and their managers are in a catch-22 situation. IndAsia Fund Advisor’s Chairman Pradip Shah explains: “It’s a highly stressful life. If you don’t invest, LPs will hold you responsible. If you invest and it’s a judgement error, which is also highly possible, your LPs will, again, hold you accountable.”
One would argue that even Dhawan had to ‘earn’ a greater flexibility from his sponsors while investing, after he returned a third of his fifth fund.
So, is the pressure becoming unbearable? Are most of Dhawan’s contemporaries seeking exit options? Far from it! For most, its PE till the ticker stops. “I’ve never thought of doing anything else. To me philanthropy means giving two per cent of the fund’s fees for a good cause. We do that at CX Partners,” says Ajay Relan, the fund’s founder. “I enjoy it a lot. Also, it’s a good living,” quips Bhasin.
But, most are pursuing a greater independence and have opted for their own independent, but smaller and local, franchisees. They are clearly more egalitarian in nature. “PE’s don’t do well under big global financial organisations, as there is a conflict between them and the investors. Organisations prefer predictable cash flows and more assets under management for a fatter management fee, while investors like to maximise their carry. And, by definition, a carry is unpredictable and lumpy,” sums up Bhasin.
Local independence translates into quick decisions and nimbler bets and globally LPs are now keeping separate allocations for each market.
That’s why Ajay Relan started CX Partners in 2008 after a scorching stint at Citi Venture Capital International and closed a $550-million fund last year as its launch pad. Similarly, Renuka Ramnath quit ICICI Venture for her own fund, Multiples, which is aiming to double the fund size after raising $ 250 million. Rajesh Khanna, former MD of Warburg Pincus, today has his Arka Capital and, more recently, the four founding members of Sequoia Capital — KP Balaraj, Sumir Chadha, Sandeep Singhal and SK Jain – quit the firm to set up a new fund to invest in publicly-listed companies. This arguably was one of the biggest management transitions in the Indian private equity industry. It has also been yet another bold example of managers bootstrapping to chart their own, independent course of investing across different asset classes.
