PRIVATE EQUITY COMPANIES IN INDIA

YOUR NAME

ADMISSION NUMBER

SPECIALIZATION

SUBMITTED TO:

PRIN.LN.WELINGKAR INSTITUTE OF MANAGEMENT DEVELOPMENT AND

RESEARCH

[YEAR]

1
 ABSTRACT

The huge sums that private equity firms make on their investments evoke admiration and
envy. Typically, these returns are attributed to the firms' aggressive use of debt, concentration
on cash flow and margins, freedom from public company regulations, and hefty incentives
for operating managers. But the fundamental reason for private equity's success is the
strategy of buying to sell -one rarely employed by public companies, which, in pursuit of
synergies, usually buy to keep.

The chief advantage of buying to sell is simple but often overlooked, explain Barber and
Goold, directors of the Ashridge Strategic Management Centre. Private equity's sweet spot is
acquisitions that have been undermanaged or undervalued, where there's a onetime
opportunity to increase a business's value. Once that gain has been realized, private equity
firms sell for a maximum return. A corporate acquirer, in contrast, will dilute its return by
hanging on to the business after the growth in value tapers off. Public companies that
compete in this space can offer investors better returns than private equity firms do.

After all, a public company wouldn't deduct the 30% that funds take out of gross profits.
Corporations have two options: (1) to copy private equity's model, as investment companies
Wendel and Eurazeo have done with dramatic success, or (2) to take a flexible approach,
holding businesses for as long as they can add value as owners. The latter would give
companies an advantage over funds, which must liquidate within a present time - potentially
leaving money on the table. Both options present public companies with challenges,
including India capital-gains taxes and a dearth of investment management skills. But the
greatest barrier may be public companies' aversion to exiting a healthy business and their
inability to see it the way private equity firms do-as the culmination of a successful
transformation, nota strategic error.

2
 TABLE OF CONTENTS

CHAPTER 1 INTRODUCTION..................................................................................

1.1 Private Equity.............................................................................................................

1.2 History and Development..........................................................................................

1.3 Private Equity in the 1980s........................................................................................

CHAPTER 2 LIQUIDITY IN THE PRIVATE-EQUITY MARKET......................

2.1 Introduction................................................................................................................

2.2 Private-Equity Firms..................................................................................................

2.3 Private-Equity Funds.................................................................................................

2.4 Size of the Industry....................................................................................................

CHAPTER 3 STRATEGIC SECRET OF PRIVATE EQUITY...............................

3.1 Important Strategic Secrets of Private Equity............................................................

CHAPTER 4 PRIVATE EQUITY IN INDIA.............................................................

4.1 Introduction to Private Equity in India......................................................................

4.2 Biggest Private Equity Firms in India........................................................................

4.3 India and Private Equity Investment..........................................................................

CHAPTER 5 PRIVATE EQUITY COMPANIES IN INDIA....................................

5.1 Top Private Equity Firms in India.............................................................................

5.2 Indian Funds or Foreign PE Funds............................................................................

5.3 Invest In Private Equity in India................................................................................

CHAPTER 6 CONCLUSION ......................................................................................

BIBLIOGRAPHY

3
 CHAPTER 1

INTRODUCTION

1.1 PRIVATE EQUITY

Private equity (PE) typically refers to investment funds, generally organized as limited
partnerships, which buy and restructure companies that are not publicly traded.

Private equity is a type of equity and one of the asset classes consisting of equity securities
and debt in operating companies that are not publicly traded on a stock exchange.

A private-equity investment will generally be made by a private-equity firm, a venture capital

firm or an angel investor. Each of these categories of investors has its own set of goals,
preferences and investment strategies; however, all provide working capital to a target
company to nurture expansion, new-product development, or restructuring of the company's
operations, management, or ownership.

Common investment strategies in private equity include leveraged buyouts, venture capital,
growth capital, distressed investments and mezzanine capital. In a typical leveraged-buyout
transaction, a private-equity firm buys majority control of an existing or mature firm. This is
distinct from a venture-capital or growth-capital investment, in which the investors (typically
venture-capital firms or angel investors) invest in young, growing or emerging companies,
and rarely obtain majority control.

Private equity is also often grouped into a broader category called private capital, generally
used to describe capital supporting any long-term, illiquid investment strategy.

The key features of private-equity operations are generally as follows.

4
A private-equity manager uses the money of investors to fund its acquisitions – investors are
e.g. hedge funds, pension funds, university endowments or wealthy individuals.

It restructures the acquired firm (or firms) and attempts to resell at a higher value, aiming for
a high return on equity. The restructuring often involves cutting costs, which produces higher
profits in the short term, but can probably do long-term damage to customer relationships and
workforce morale.

Private equity makes extensive use of debt financing to purchase companies in use of
leverage – hence the earlier name for private-equity operations: leveraged buy-outs. (A small
increase in firm value – for example, a growth of asset price by 20% – can lead to 100%
return on equity, if the amount the private-equity fund put down to buy the company in the
first place was only 20% down and 80% debt. However, if the private-equity firm fails to
make the target grow in value, losses will be large.) Additionally, debt financing reduces
corporate taxation burdens, as interest payments are tax-deductible, and is one of the
principal ways in which profits for investors are enhanced.

Because innovations tend to be produced by outsiders and founders in startups, rather than
existing organizations, private equity targets startups to create value by overcoming agency
costs and better aligning the incentives of corporate managers with those of their
shareholders. This means a greater share of firm retained earnings is taken out of the firm to
distribute to shareholders than is reinvested in the firm's workforce or equipment. When
private equity purchases a very small startup it can behave like venture capital and help the
small firm reach a wider market. However, when private equity purchases a larger firm, the
experience of being managed by private equity may lead to loss of product quality and low
morale among the employees.

Private-equity investors often syndicate their transactions to other buyers to achieve benefits
that include diversification of different types of target risk, the combination of
complementary investor information and skillsets, and an increase in future deal flow.

Strategies

The strategies private-equity firms may use are as follows, leveraged buyout being the most
important.

Leveraged buyout

5
Leveraged buyout, LBO, or Buyout refers to a strategy of making equity investments as part
of a transaction in which a company, business unit, or business assets is acquired from the
current shareholders typically with the use of financial leverage. The companies involved in
these transactions are typically mature and generate operating cash flows.

Private-equity firms view target companies as either Platform companies which have
sufficient scale and a successful business model to act as a stand-alone entity, or as add-on /
tuck-in / bolt-on acquisitions, which would include companies with insufficient scale or other
deficits.

Leveraged buyouts involve a financial sponsor agreeing to an acquisition without itself

committing all the capital required for the acquisition. To do this, the financial sponsor will
raise acquisition debt which ultimately looks to the cash flows of the acquisition target to
make interest and principal payments. Acquisition debt in an LBO is often non-recourse to
the financial sponsor and has no claim on other investments managed by the financial
sponsor. Therefore, an LBO transaction's financial structure is particularly attractive to a
fund's limited partners, allowing them the benefits of leverage but greatly limiting the degree
of recourse of that leverage. This kind of financing structure leverage benefits an LBO's
financial sponsor in two ways: (1) the investor itself only needs to provide a fraction of the
capital for the acquisition, and (2) the returns to the investor will be enhanced (as long as the
return on assets exceeds the cost of the debt).

As a percentage of the purchase price for a leverage buyout target, the amount of debt used to
finance a transaction varies according to the financial condition and history of the acquisition
target, market conditions, the willingness of lenders to extend credit (both to the LBO's
financial sponsors and the company to be acquired) as well as the interest costs and the ability
of the company to cover those costs. Historically the debt portion of a LBO will range from

6
60%–90% of the purchase price. Between 2000–2005 debt averaged between 59.4% and
67.9% of total purchase price for LBOs in the United States.

Simple example of leveraged buyout

A private-equity fund, ABC Capital II, borrows $9bn from a bank (or other lender). To this, it
adds $2bn of equity – money from its own partners and from limited partners. With this
$11bn it buys all the shares of an underperforming company, XYZ Industrial (after due
diligence, i.e. checking the books). It replaces the senior management in XYZ Industrial, and
they set out to streamline it. The workforce is reduced, some assets are sold off, etc. The
objective is to increase the value of the company for an early sale.

The stock market is experiencing a bull market, and XYZ Industrial is sold two years after
the buy-out for $13bn, yielding a profit of $2bn. The original loan can now be paid off with
interest of, say, $0.5bn. The remaining profit of $1.5bn is shared among the partners.
Taxation of such gains is at capital gains rates.

Note that part of that profit results from turning the company around, and part results from
the general increase in share prices in a buoyant stock market, the latter often being the
greater component.

Notes:

 The lenders (the people who put up the $9bn in the example) can insure against
default by syndicating the loan to spread the risk, or by buying credit default swaps
(CDSs) or selling collateralised debt obligations (CDOs) from/to other institutions
(although this is no business of the private-equity firm).
 Often the loan/equity ($11bn above) is not paid off after sale but left on the books of
the company (XYZ Industrial) for it to pay off over time. This can be advantageous
since the interest is largely offsettable against the profits of the company, thus
reducing, or even eliminating, tax.
 Most buyout deals are much smaller; the global average purchase in 2013 was $89m,
for example.
 The target company (XYZ Industrials here) does not have to be floated on the stock
market; indeed most buyout exits are not IPOs.

7
  Buy-out operations can go wrong and in such cases, the loss is increased by leverage,
just as the profit is if all goes well.

Growth capital

Growth Capital refers to equity investments, most often minority investments, in relatively
mature companies that are looking for capital to expand or restructure operations, enter new
markets or finance a major acquisition without a change of control of the business.

Companies that seek growth capital will often do so in order to finance a transformational
event in their life cycle. These companies are likely to be more mature than venture capital-
funded companies, able to generate revenue and operating profits but unable to generate
sufficient cash to fund major expansions, acquisitions or other investments. Because of this
lack of scale, these companies generally can find few alternative conduits to secure capital for
growth, so access to growth equity can be critical to pursue necessary facility expansion,
sales and marketing initiatives, equipment purchases, and new product development.

The primary owner of the company may not be willing to take the financial risk alone. By
selling part of the company to private equity, the owner can take out some value and share the
risk of growth with partners. Capital can also be used to effect a restructuring of a company's
balance sheet, particularly to reduce the amount of leverage (or debt) the company has on its
balance sheet.

A Private investment in public equity, or PIPEs, refer to a form of growth capital investment
made into a publicly traded company. PIPE investments are typically made in the form of a
convertible or preferred security that is unregistered for a certain period of time.

The Registered Direct, or RD, is another common financing vehicle used for growth capital.
A registered direct is similar to a PIPE but is instead sold as a registered security.

Mezzanine capital

Mezzanine capital refers to subordinated debt or preferred equity securities that often
represent the most junior portion of a company's capital structure that is senior to the
company's common equity. This form of financing is often used by private-equity investors
to reduce the amount of equity capital required to finance a leveraged buyout or major
expansion. Mezzanine capital, which is often used by smaller companies that are unable to
access the high yield market, allows such companies to borrow additional capital beyond the

8
levels that traditional lenders are willing to provide through bank loans. In compensation for
the increased risk, mezzanine debt holders require a higher return for their investment than
secured or other more senior lenders. Mezzanine securities are often structured with a current
income coupon.

Venture capital

Venture capital or VC is a broad subcategory of private equity that refers to equity

investments made, typically in less mature companies, for the launch of a seed or startup
company, early-stage development, or expansion of a business. Venture investment is most
often found in the application of new technology, new marketing concepts and new products
that do not have a proven track record or stable revenue streams.

Venture capital is often sub-divided by the stage of development of the company ranging
from early-stage capital used for the launch of startup companies to late stage and growth
capital that is often used to fund expansion of existing business that are generating revenue
but may not yet be profitable or generating cash flow to fund future growth.

Entrepreneurs often develop products and ideas that require substantial capital during the
formative stages of their companies' life cycles. Many entrepreneurs do not have sufficient
funds to finance projects themselves, and they must, therefore, seek outside financing. The
venture capitalist's need to deliver high returns to compensate for the risk of these
investments makes venture funding an expensive capital source for companies. Being able to
secure financing is critical to any business, whether it is a startup seeking venture capital or a
mid-sized firm that needs more cash to grow. Venture capital is most suitable for businesses
with large up-front capital requirements which cannot be financed by cheaper alternatives
such as debt. Although venture capital is often most closely associated with fast-growing
technology, healthcare and biotechnology fields, venture funding has been used for other
more traditional businesses.

Investors generally commit to venture capital funds as part of a wider diversified private-
equity portfolio, but also to pursue the larger returns the strategy has the potential to offer.
However, venture capital funds have produced lower returns for investors over recent years
compared to other private-equity fund types, particularly buyout.

Distressed and special situations

9
Distressed or Special Situations is a broad category referring to investments in equity or debt
securities of financially stressed companies. The "distressed" category encompasses two
broad sub-strategies including:

 "Distressed-to-Control" or "Loan-to-Own" strategies where the investor acquires debt

securities in the hopes of emerging from a corporate restructuring in control of the
company's equity;
 "Special Situations" or "Turnaround" strategies where an investor will provide debt
and equity investments, often "rescue financing" to companies undergoing operational
or financial challenges.

In addition to these private-equity strategies, hedge funds employ a variety of distressed

investment strategies including the active trading of loans and bonds issued by distressed
companies.

Secondaries

Secondary investments refer to investments made in existing private-equity assets. These

transactions can involve the sale of private-equity fund interests or portfolios of direct
investments in privately held companies through the purchase of these investments from
existing institutional investors. By its nature, the private-equity asset class is illiquid,
intended to be a long-term investment for buy and hold investors. Secondary investments
provide institutional investors with the ability to improve vintage diversification, particularly
for investors that are new to the asset class. Secondaries also typically experience a different
cash flow profile, diminishing the j-curve effect of investing in new private-equity funds.
Often investments in secondaries are made through third-party fund vehicle, structured
similar to a fund of funds although many large institutional investors have purchased private-
equity fund interests through secondary transactions. Sellers of private-equity fund
investments sell not only the investments in the fund but also their remaining unfunded
commitments to the funds.

Other strategies

Other strategies that can be considered private equity or a close adjacent market include:

10
Real estate: in the context of private equity this will typically refer to the riskier end of the
investment spectrum including "value-added" and opportunity funds where the investments
often more closely resemble leveraged buyouts than traditional real estate investments.
Certain investors in private equity consider real estate to be a separate asset class.

Infrastructure: investments in various public works (e.g., bridges, tunnels, toll roads, airports,
public transportation, and other public works) that are made typically as part of a
privatization initiative on the part of a government entity.

Energy and Power: investments in a wide variety of companies (rather than assets) engaged
in the production and sale of energy, including fuel extraction, manufacturing, refining and
distribution (Energy) or companies engaged in the production or transmission of electrical
power (Power).

Merchant banking: negotiated private-equity investment by financial institutions in the

unregistered securities of either privately or publicly held companies.

Fund of funds: investments made in a fund whose primary activity is investing in other
private-equity funds. The fund of funds model is used by investors looking for:

 Diversification but have insufficient capital to diversify their portfolio by themselves

 Access to top-performing funds that are otherwise oversubscribed
 Experience in a particular fund type or strategy before investing directly in funds in
that niche
 Exposure to difficult-to-reach and/or emerging markets
 Superior fund selection by high-talent fund of fund managers/teams

Search fund: A search fund is an investment vehicle through which an entrepreneur (called a
"searcher") raises funds from investors in order to acquire an existing small business. After
an acquisition is made, the entrepreneur takes an operating role in the acquired company,
such as CEO and President.

Royalty fund: an investment that purchases a consistent revenue stream deriving from the
payment of royalties. One growing subset of this category is the healthcare royalty fund, in
which a private-equity fund manager purchases a royalty stream paid by a pharmaceutical
company to a drug patent holder. The drug patent holder can be another company, an
individual inventor, or some sort of institution, such as a research university.

11
1.2 HISTORY AND DEVELOPMENT

Early history and the development of venture capital

The seeds of the US private-equity industry were planted in 1946 with the founding of two
venture capital firms: American Research and Development Corporation (ARDC) and J.H.
Whitney & Company. Before World War II, venture capital investments (originally known as
"development capital") were primarily the domain of wealthy individuals and families. In
1901 J.P. Morgan arguably managed the first leveraged buyout of the Carnegie Steel
Company using private equity. Modern era private equity, however, is credited to Georges
Doriot, the "father of venture capitalism" with the founding of ARDC and founder of
INSEAD, with capital raised from institutional investors, to encourage private sector
investments in businesses run by soldiers who were returning from World War II. ARDC is
credited with the first major venture capital success story when its 1957 investment of
$70,000 in Digital Equipment Corporation (DEC) would be valued at over $355 million after
the company's initial public offering in 1968 (representing a return of over 5,000 times on its
investment and an annualized rate of return of 101%). It is commonly noted that the first
venture-backed startup is Fairchild Semiconductor (which produced the first commercially
practicable integrated circuit), funded in 1959 by what would later become Venrock
Associates.

Origins of the leveraged buyout

The first leveraged buyout may have been the purchase by McLean Industries, Inc. of Pan-
Atlantic Steamship Company in January 1955 and Waterman Steamship Corporation in May
1955 Under the terms of that transaction, McLean borrowed $42 million and raised an
additional $7 million through an issue of preferred stock. When the deal closed, $20 million
of Waterman cash and assets were used to retire $20 million of the loan debt. Lewis
Cullman's acquisition of Orkin Exterminating Company in 1964 is often cited as the first
leveraged buyout. Similar to the approach employed in the McLean transaction, the use of
publicly traded holding companies as investment vehicles to acquire portfolios of investments

12
in corporate assets was a relatively new trend in the 1960s popularized by the likes of Warren
Buffett (Berkshire Hathaway) and Victor Posner (DWG Corporation) and later adopted by
Nelson Peltz (Triarc), Saul Steinberg (Reliance Insurance) and Gerry Schwartz (Onex
Corporation). These investment vehicles would utilize a number of the same tactics and target
the same type of companies as more traditional leveraged buyouts and in many ways could be
considered a forerunner of the later private-equity firms. In fact it is Posner who is often
credited with coining the term "leveraged buyout" or "LBO".

The leveraged buyout boom of the 1980s was conceived by a number of corporate financiers,
most notably Jerome Kohlberg Jr. and later his protégé Henry Kravis. Working for Bear
Stearns at the time, Kohlberg and Kravis along with Kravis' cousin George Roberts began a
series of what they described as "bootstrap" investments. Many of these companies lacked a
viable or attractive exit for their founders as they were too small to be taken public and the
founders were reluctant to sell out to competitors and so a sale to a financial buyer could
prove attractive. In the following years the three Bear Stearns bankers would complete a
series of buyouts including Stern Metals (1965), Incom (a division of Rockwood
International, 1971), Cobblers Industries (1971), and Boren Clay (1973) as well as Thompson
Wire, Eagle Motors and Barrows through their investment in Stern Metals. By 1976, tensions
had built up between Bear Stearns and Kohlberg, Kravis and Roberts leading to their
departure and the formation of Kohlberg Kravis Roberts in that year.

1.3 PRIVATE EQUITY IN THE 1980s

In January 1982, former United States Secretary of the Treasury William E. Simon and a
group of investors acquired Gibson Greetings, a producer of greeting cards, for $80 million,
of which only $1 million was rumored to have been contributed by the investors. By mid-
1983, just sixteen months after the original deal, Gibson completed a $290 million IPO and
Simon made approximately $66 million.

The success of the Gibson Greetings investment attracted the attention of the wider media to
the nascent boom in leveraged buyouts. Between 1979 and 1989, it was estimated that there
were over 2,000 leveraged buyouts valued in excess of $250 million.

During the 1980s, constituencies within acquired companies and the media ascribed the
"corporate raid" label to many private-equity investments, particularly those that featured a
hostile takeover of the company, perceived asset stripping, major layoffs or other significant

13
corporate restructuring activities. Among the most notable investors to be labeled corporate
raiders in the 1980s included Carl Icahn, Victor Posner, Nelson Peltz, Robert M. Bass, T.
Boone Pickens, Harold Clark Simmons, Kirk Kerkorian, Sir James Goldsmith, Saul Steinberg
and Asher Edelman. Carl Icahn developed a reputation as a ruthless corporate raider after his
hostile takeover of TWA in 1985. Many of the corporate raiders were onetime clients of
Michael Milken, whose investment banking firm, Drexel Burnham Lambert helped raise
blind pools of capital with which corporate raiders could make a legitimate attempt to take
over a company and provided high-yield debt ("junk bonds") financing of the buyouts.

One of the final major buyouts of the 1980s proved to be its most ambitious and marked both
a high-water mark and a sign of the beginning of the end of the boom that had begun nearly a
decade earlier. In 1989, KKR (Kohlberg Kravis Roberts) closed in on a $31.1 billion takeover
of RJR Nabisco. It was, at that time and for over 17 years, the largest leveraged buyout in
history. The event was chronicled in the book (and later the movie), Barbarians at the Gate:
The Fall of RJR Nabisco. KKR would eventually prevail in acquiring RJR Nabisco at $109
per share, marking a dramatic increase from the original announcement that Shearson
Lehman Hutton would take RJR Nabisco private at $75 per share. A fierce series of
negotiations and horse-trading ensued which pitted KKR against Shearson and later
Forstmann Little & Co.

Many of the major banking players of the day, including Morgan Stanley, Goldman Sachs,
Salomon Brothers, and Merrill Lynch were actively involved in advising and financing the
parties. After Shearson's original bid, KKR quickly introduced a tender offer to obtain RJR
Nabisco for $90 per share—a price that enabled it to proceed without the approval of RJR
Nabisco's management. RJR's management team, working with Shearson and Salomon
Brothers, submitted a bid of $112, a figure they felt certain would enable them to outflank
any response by Kravis's team. KKR's final bid of $109, while a lower dollar figure, was
ultimately accepted by the board of directors of RJR Nabisco.

At $31.1 billion of transaction value, RJR Nabisco was by far the largest leveraged buyouts
in history. In 2006 and 2007, a number of leveraged buyout transactions were completed that
for the first time surpassed the RJR Nabisco leveraged buyout in terms of nominal purchase
price. However, adjusted for inflation, none of the leveraged buyouts of the 2006–2007
period would surpass RJR Nabisco. By the end of the 1980s the excesses of the buyout
market were beginning to show, with the bankruptcy of several large buyouts including

14
Robert Campeau's 1988 buyout of Federated Department Stores, the 1986 buyout of the
Revco drug stores, Walter Industries, FEB Trucking and Eaton Leonard. Additionally, the
RJR Nabisco deal was showing signs of strain, leading to a recapitalization in 1990 that
involved the contribution of $1.7 billion of new equity from KKR. In the end, KKR lost $700
million on RJR.

Drexel reached an agreement with the government in which it pleaded nolo contendere (no
contest) to six felonies – three counts of stock parking and three counts of stock
manipulation. It also agreed to pay a fine of $650 million – at the time, the largest fine ever
levied under securities laws. Milken left the firm after his own indictment in March 1989. On
13 February 1990 after being advised by United States Secretary of the Treasury Nicholas F.
Brady, the U.S. Securities and Exchange Commission (SEC), the New York Stock Exchange
and the Federal Reserve, Drexel Burnham Lambert officially filed for Chapter 11 bankruptcy
protection.

Age of the mega-buyout: 2005–2007

The combination of decreasing interest rates, loosening lending standards and regulatory
changes for publicly traded companies (specifically the Sarbanes–Oxley Act) would set the
stage for the largest boom private equity had seen. Marked by the buyout of Dex Media in
2002, large multibillion-dollar U.S. buyouts could once again obtain significant high yield
debt financing and larger transactions could be completed. By 2004 and 2005, major buyouts
were once again becoming common, including the acquisitions of Toys "R" Us, The Hertz
Corporation, Metro-Goldwyn-Mayer and SunGard in 2005.

As 2005 ended and 2006 began, new "largest buyout" records were set and surpassed several
times with nine of the top ten buyouts at the end of 2007 having been announced in an 18-
month window from the beginning of 2006 through the middle of 2007. In 2006, private-
equity firms bought 654 U.S. companies for $375 billion, representing 18 times the level of
transactions closed in 2003. Additionally, U.S.-based private-equity firms raised $215.4
billion in investor commitments to 322 funds, surpassing the previous record set in 2000 by
22% and 33% higher than the 2005 fundraising total The following year, despite the onset of
turmoil in the credit markets in the summer, saw yet another record year of fundraising with
$302 billion of investor commitments to 415 funds Among the mega-buyouts completed
during the 2006 to 2007 boom were: EQ Office, HCA, Alliance Boots and TXU.

15
In July 2007, the turmoil that had been affecting the mortgage markets, spilled over into the
leveraged finance and high-yield debt markets. The markets had been highly robust during
the first six months of 2007, with highly issuer friendly developments including PIK and PIK
Toggle (interest is "Payable In Kind") and covenant light debt widely available to finance
large leveraged buyouts. July and August saw a notable slowdown in issuance levels in the
high yield and leveraged loan markets with few issuers accessing the market. Uncertain
market conditions led to a significant widening of yield spreads, which coupled with the
typical summer slowdown led many companies and investment banks to put their plans to
issue debt on hold until the autumn. However, the expected rebound in the market after 1
May 2007 did not materialize, and the lack of market confidence prevented deals from
pricing. By the end of September, the full extent of the credit situation became obvious as
major lenders including Citigroup and UBS AG announced major writedowns due to credit
losses. The leveraged finance markets came to a near standstill during a week in 2007. As
2007 ended and 2008 began, it was clear[by whom?] that lending standards had tightened and
the era of "mega-buyouts" had come to an end. Nevertheless, private equity continues to be a
large and active asset class and the private-equity firms, with hundreds of billions of dollars
of committed capital from investors are looking to deploy capital in new and different
transactions.

As a result of the global financial crisis, private equity has become subject to increased
regulation in Europe and is now subject, among other things, to rules preventing asset
stripping of portfolio companies and requiring the notification and disclosure of information
in connection with buy-out activity.

Staying private for longer

With the increased availability and scope of funding provided by private markets, many
companies are staying private simply because they can. McKinsey & Company reports in its
Global Private Markets Review 2018 that global private market fundraising increased by
$28.2 billion from 2017, for a total of $748 billion in 2018. Thus, given the abundance of
private capital available, companies no longer require public markets for sufficient funding.
Benefits may include avoiding the cost of an IPO (the average operating company going
public in 2019 paid $750, 000 USD), maintaining more control of the company, and having
the 'legroom' to think long-term rather than focus on short-term or quarterly figures.

Investments in private equity

16
Although the capital for private equity originally came from individual investors or
corporations, in the 1970s, private equity became an asset class in which various institutional
investors allocated capital in the hopes of achieving risk-adjusted returns that exceed those
possible in the public equity markets. In the 1980s, insurers were major private-equity
investors. Later, public pension funds and university and other endowments became more
significant sources of capital. For most institutional investors, private-equity investments are
made as part of a broad asset allocation that includes traditional assets (e.g., public equity and
bonds) and other alternative assets (e.g., hedge funds, real estate, commodities).

Investor categories

US, Canadian and European public and private pension schemes have invested in the asset
class since the early 1980s to diversify away from their core holdings (public equity and fixed
income). Today pension investment in private equity accounts for more than a third of all
monies allocated to the asset class, ahead of other institutional investors such as insurance
companies, endowments, and sovereign wealth funds.

Direct vs. indirect investment

Most institutional investors do not invest directly in privately held companies, lacking the
expertise and resources necessary to structure and monitor the investment. Instead,
institutional investors will invest indirectly through a private-equity fund. Certain
institutional investors have the scale necessary to develop a diversified portfolio of private-
equity funds themselves, while others will invest through a fund of funds to allow a portfolio
more diversified than one a single investor could construct.

Investment timescales

17
Returns on private-equity investments are created through one or a combination of three
factors that include: debt repayment or cash accumulation through cash flows from
operations, operational improvements that increase earnings over the life of the investment
and multiple expansion, selling the business for a higher price than was originally paid. A key
component of private equity as an asset class for institutional investors is that investments are
typically realized after some period of time, which will vary depending on the investment
strategy. Private-equity investment returns are typically realized through one of the following
avenues:

 an initial public offering (IPO) – shares of the company are offered to the public,
typically providing a partial immediate realization to the financial sponsor as well as a
public market into which it can later sell additional shares;
 a merger or acquisition – the company is sold for either cash or shares in another
company;
 a recapitalization – cash is distributed to the shareholders (in this case the financial
sponsor) and its private-equity funds either from cash flow generated by the company
or through raising debt or other securities to fund the distribution.

Large institutional asset owners such as pension funds (with typically long-dated liabilities),
insurance companies, sovereign wealth and national reserve funds have a generally low
likelihood of facing liquidity shocks in the medium term, and thus can afford the required
long holding periods characteristic of private-equity investment.

The median horizon for a LBO transaction is 8 years.

18
 CHAPTER 2

LIQUIDITY IN THE PRIVATE-EQUITY MARKET

2.1 INTRODUCTION

The buyer exchanges a single cash payment to the seller for both the investments in the fund
plus any unfunded commitments to the fund. The private-equity secondary market (also often
called private-equity secondaries) refers to the buying and selling of pre-existing investor
commitments to private equity and other alternative investment funds. Sellers of private-
equity investments sell not only the investments in the fund but also their remaining unfunded
commitments to the funds. By its nature, the private-equity asset class is illiquid, intended to
be a long-term investment for buy-and-hold investors. For the vast majority of private-equity
investments, there is no listed public market; however, there is a robust and maturing
secondary market available for sellers of private-equity assets.

Increasingly, secondaries are considered a distinct asset class with a cash flow profile that is
not correlated with other private-equity investments. As a result, investors are allocating
capital to secondary investments to diversify their private-equity programs. Driven by strong
demand for private-equity exposure, a significant amount of capital has been committed to
secondary investments from investors looking to increase and diversify their private-equity
exposure.

19
Investors seeking access to private equity have been restricted to investments with structural
impediments such as long lock-up periods, lack of transparency, unlimited leverage,
concentrated holdings of illiquid securities and high investment minimums.

Secondary transactions can be generally split into two basic categories:

Sale of limited-partnership interests

The most common secondary transaction, this category includes the sale of an investor's
interest in a private-equity fund or portfolio of interests in various funds through the transfer
of the investor's limited-partnership interest in the fund(s). Nearly all types of private-equity
funds (e.g., including buyout, growth equity, venture capital, mezzanine, distressed and real
estate) can be sold in the secondary market. The transfer of the limited partnership interest
typically will allow the investor to receive some liquidity for the funded investments as well
as a release from any remaining unfunded obligations to the fund.

Sale of direct interests, secondary directs or synthetic secondaries

This category refers to the sale of portfolios of direct investments in operating companies,
rather than limited partnership interests in investment funds. These portfolios historically
have originated from either corporate development programs or large financial institutions.

2.2 PRIVATE-EQUITY FIRMS

According to an updated 2017 ranking created by industry magazine Private Equity

International (published by PEI Media called the PEI 300), the largest private-equity firm in
the world today is The Blackstone Group based on the amount of private-equity direct-
investment capital raised over a five-year window. The 10 most prominent private-equity
firms in the world are:

1. The Blackstone Group

2. Sycamore Partners
3. Kohlberg Kravis Roberts
4. The Carlyle Group
5. TPG Capital
6. Warburg Pincus
7. Advent International Corporation
8. Apollo Global Management

20
 9. EnCap Investments
10. CVC Capital Partners

Because private-equity firms are continuously in the process of raising, investing and
distributing their private-equity funds, capital raised can often be the easiest to measure.
Other metrics can include the total value of companies purchased by a firm or an estimate of
the size of a firm's active portfolio plus capital available for new investments. As with any list
that focuses on size, the list does not provide any indication as to relative investment
performance of these funds or managers.

Preqin, an independent data provider, ranks the 25 largest private-equity investment

managers. Among the larger firms in the 2017 ranking were AlpInvest Partners, Ardian
(formerly AXA Private Equity), AIG Investments, and Goldman Sachs Capital Partners.
Invest Europe publishes a yearbook which analyses industry trends derived from data
disclosed by over 1,300 European private-equity funds. Finally, websites such as AskIvy.net
provide lists of London-based private-equity firms.

Versus hedge funds

The investment strategies of private-equity firms differ from those of hedge funds. Typically,
private-equity investment groups are geared towards long-hold, multiple-year investment
strategies in illiquid assets (whole companies, large-scale real estate projects, or other
tangibles not easily converted to cash) where they have more control and influence over
operations or asset management to influence their long-term returns. Hedge funds usually
focus on short or medium term liquid securities which are more quickly convertible to cash,
and they do not have direct control over the business or asset in which they are investing.
Both private-equity firms and hedge funds often specialize in specific types of investments
and transactions. Private-equity specialization is usually in specific industry sector asset
management while hedge fund specialization is in industry sector risk capital management.
Private-equity strategies can include wholesale purchase of a privately held company or set of
assets, mezzanine financing for startup projects, growth capital investments in existing
businesses or leveraged buyout of a publicly held asset converting it to private control.
Finally, private-equity firms only take long positions, for short selling is not possible in this
asset class.

2.3 PRIVATE-EQUITY FUNDS

21
Private-equity fundraising refers to the action of private-equity firms seeking capital from
investors for their funds. Typically an investor will invest in a specific fund managed by a
firm, becoming a limited partner in the fund, rather than an investor in the firm itself. As a
result, an investor will only benefit from investments made by a firm where the investment is
made from the specific fund in which it has invested.

Fund of funds. These are private-equity funds that invest in other private-equity funds in
order to provide investors with a lower risk product through exposure to a large number of
vehicles often of different type and regional focus. Fund of funds accounted for 14% of
global commitments made to private-equity funds in 2006.

Individuals with substantial net worth. Substantial net worth is often required of investors by
the law, since private-equity funds are generally less regulated than ordinary mutual funds.
For example, in the US, most funds require potential investors to qualify as accredited
investors, which requires $1 million of net worth, $200,000 of individual income, or
$300,000 of joint income (with spouse) for two documented years and an expectation that
such income level will continue.

As fundraising has grown over the past few years, so too has the number of investors in the
average fund. In 2004 there were 26 investors in the average private-equity fund, this figure
has now grown to 42 according to Preqin ltd. (formerly known as Private Equity
Intelligence).

The managers of private-equity funds will also invest in their own vehicles, typically
providing between 1–5% of the overall capital.

22
Often private-equity fund managers will employ the services of external fundraising teams
known as placement agents in order to raise capital for their vehicles. The use of placement
agents has grown over the past few years, with 40% of funds closed in 2006 employing their
services, according to Preqin ltd. Placement agents will approach potential investors on
behalf of the fund manager, and will typically take a fee of around 1% of the commitments
that they are able to garner.

The amount of time that a private-equity firm spends raising capital varies depending on the
level of interest among investors, which is defined by current market conditions and also the
track record of previous funds raised by the firm in question. Firms can spend as little as one
or two months raising capital when they are able to reach the target that they set for their
funds relatively easily, often through gaining commitments from existing investors in their
previous funds, or where strong past performance leads to strong levels of investor interest.
Other managers may find fundraising taking considerably longer, with managers of less
popular fund types (such as US and European venture fund managers in the current climate)
finding the fundraising process more tough. It is not unheard of for funds to spend as long as
two years on the road seeking capital, although the majority of fund managers will complete
fundraising within nine months to fifteen months.

Once a fund has reached its fundraising target, it will have a final close. After this point it is
not normally possible for new investors to invest in the fund, unless they were to purchase an
interest in the fund on the secondary market.

2.4 SIZE OF THE INDUSTRY

The state of the industry around the end of 2011 was as follows.

Private-equity assets under management probably exceeded $2.0 trillion at the end of March
2012, and funds available for investment totalled $949bn (about 47% of overall assets under
management).

Some $246bn of private equity was invested globally in 2011, down 6% on the previous year
and around two-thirds below the peak activity in 2006 and 2007. Following on from a strong
start, deal activity slowed in the second half of 2011 due to concerns over the global economy
and sovereign debt crisis in Europe. There was $93bn in investments during the first half of
this year as the slowdown persisted into 2012. This was down a quarter on the same period in
the previous year. Private-equity backed buyouts generated some 6.9% of global M&A

23
volume in 2011 and 5.9% in the first half of 2012. This was down on 7.4% in 2010 and well
below the all-time high of 21% in 2006.

Global exit activity totalled $252bn in 2011, practically unchanged from the previous year,
but well up on 2008 and 2009 as private-equity firms sought to take advantage of improved
market conditions at the start of the year to realise investments. Exit activity however, has
lost momentum following a peak of $113bn in the second quarter of 2011. TheCityUK
estimates total exit activity of some $100bn in the first half of 2012, well down on the same
period in the previous year.

The fund raising environment remained stable for the third year running in 2011 with $270bn
in new funds raised, slightly down on the previous year's total. Around $130bn in funds was
raised in the first half of 2012, down around a fifth on the first half of 2011. The average time
for funds to achieve a final close fell to 16.7 months in the first half of 2012, from 18.5
months in 2011. Private-equity funds available for investment ("dry powder") totalled $949bn
at the end of q1-2012, down around 6% on the previous year. Including unrealised funds in
existing investments, private-equity funds under management probably totalled over $2.0
trillion.

Public pensions are a major source of capital for private-equity funds. Increasingly, sovereign
wealth funds are growing as an investor class for private equity.

Private-equity fund performance

Due to limited disclosure, studying the returns to private equity is relatively difficult. Unlike
mutual funds, private-equity funds need not disclose performance data. And, as they invest in
private companies, it is difficult to examine the underlying investments. It is challenging to
compare private-equity performance to public-equity performance, in particular because
private-equity fund investments are drawn and returned over time as investments are made
and subsequently realized.

An oft-cited academic paper (Kaplan and Schoar, 2005) suggests that the net-of-fees returns
to PE funds are roughly comparable to the S&P 500 (or even slightly under). This analysis
may actually overstate the returns because it relies on voluntarily reported data and hence
suffers from survivorship bias (i.e. funds that fail won't report data). One should also note
that these returns are not risk-adjusted. A more recent paper (Harris, Jenkinson and Kaplan,
2012) found that average buyout fund returns in the U.S. have actually exceeded that of

24
public markets. These findings were supported by earlier work, using a different data set
(Robinson and Sensoy, 2011).

Commentators have argued that a standard methodology is needed to present an accurate

picture of performance, to make individual private-equity funds comparable and so the asset
class as a whole can be matched against public markets and other types of investment. It is
also claimed that PE fund managers manipulate data to present themselves as strong
performers, which makes it even more essential to standardize the industry.

Two other findings in Kaplan and Schoar (2005): First, there is considerable variation in
performance across PE funds. Second, unlike the mutual fund industry, there appears to be
performance persistence in PE funds. That is, PE funds that perform well over one period,
tend to also perform well the next period. Persistence is stronger for VC firms than for LBO
firms.

The application of the Freedom of Information Act (FOIA) in certain states in the United
States has made certain performance data more readily available. Specifically, FOIA has
required certain public agencies to disclose private-equity performance data directly on their
websites.

In the United Kingdom, the second largest market for private equity, more data has become
available since the 2007 publication of the David Walker Guidelines for Disclosure and
Transparency in Private Equity.

Debate

Recording private equity

There is a debate around the distinction between private equity and foreign direct investment
(FDI), and whether to treat them separately. The difference is blurred on account of private
equity not entering the country through the stock market. Private equity generally flows to
unlisted firms and to firms where the percentage of shares is smaller than the promoter- or
investor-held shares (also known as free-floating shares). The main point of contention is that
FDI is used solely for production, whereas in the case of private equity the investor can
reclaim their money after a revaluation period and make investments in other financial assets.
At present, most countries report private equity as a part of FDI.

Healthcare investments

25
Private equity investments in health care and related services, such as nursing homes and
hospitals, are alleged to have decreased the quality of care while driving up costs.
Researchers at the Becker Friedman Institute of the University of Chicago found that private
equity ownership of nursing homes increased the short-term mortality of Medicare patients
by 10%. Treatment by private equity owned health care providers tends to be associated with
a higher rate of "surprise bills". Private equity ownership of dermatology practices has led to
pressure to increase profitability, concerns about up-charging and patient safety.

26
 CHAPTER 3

STRATEGIC SECRET OF PRIVATE EQUITY

3.1 IMPORTANT STRATEGIC SECRETS OF PRIVATE EQUITY

Buying to sell can’t be an all-purpose strategy for public companies to adopt; it doesn’t make
sense when an acquired business will benefit from important synergies with the buyer’s
existing portfolio of businesses. It certainly isn’t the way for a company to profit from an
acquisition whose main appeal is its prospects for long-term organic growth.

However, as private equity firms have shown, the strategy is ideally suited when, in order to
realize a one-time, short to medium-term value-creation opportunity, buyers must take
outright ownership and control.

Such an opportunity most often arises when a business hasn’t been aggressively managed and
so is underperforming. It can also be found with businesses that are undervalued because
their potential isn’t readily apparent.

27
In those cases, once the changes necessary to achieve the uplift in value have been made
usually over a period of two to six years – it makes sense for the owner to sell the business
and move on to new opportunities.

The benefits of buying to sell in such situations are plain-though, again, often overlooked.
Consider an acquisition that quickly increases in value -generating an annual investor return
of, say, 25% a year for the first three years – but subsequently earns a more modest if still
healthy return of, say, 12% a year.

A private equity firm that, following a buy-to-sell strategy, sells it after three years will
garner 25% annual returns. A diversified public company that achieves identical operational
performance with the acquired business – but, as is typical, has bought it as a long-term
investment – will earn a return that gets closer to 12% the longer it owns the business. For the
public company, holding on to the business once the value-creating changes have been made
dilutes the final return.

In the early years of the current buyout boom, private equity firms prospered mainly by
acquiring the noncore business units of large public companies. Under their previous owners,
those businesses had often suffered from neglect, unsuitable performance targets, or other
constraints.

Even if well managed, such businesses may have lacked an independent track record because
the parent company had integrated their operations with those of other units, making the
businesses hard to value.

Sales by public companies of unwanted business units were the most important category of
large private equity buyouts until 2004, and the leading firms’ widely admired history of high
investment returns comes largely from acquisitions of this type.

More recently, private equity firms -aiming for greater growth – have shifted their attention
to the acquisition of entire public companies. This has created new challenges for private
equity firms. In public companies, easily realized improvements in performance often have
already been achieved through better corporate governance or the activism of hedge funds.

For example, a hedge fund with a significant stake in a public company can, without having
to buy the company outright, pressure the board into making valuable changes such as selling
unnecessary assets or spinning off a noncore unit.

28
If a public company needs to be taken private to improve its performance, the necessary
changes are likely to test a private equity firm’s implementation skills far more than the
acquisition of a business unit would.

Many also predict that financing large buyouts will become much more difficult, at least in
the short term, if there is a cyclical rise in interest rates and cheap debt dries up.

And it may become harder for firms to cash out of their investments by taking them public;
given the current high volume of buyouts, the number of large IPOs could strain the stock
markets’ ability to absorb new issues in a few years.

Even if the current private equity investment wave recedes, though, the distinct advantages of
the buy-to-sell approach – and the lessons it offers public companies-will remain. For one
thing, because all businesses in a private equity portfolio will soon be sold, they remain in the
spotlight and under constant pressure to perform.

In contrast, a business unit that has been part of a public company’s portfolio for some time
and has performed adequately, if not spectacularly, generally doesn’t get priority attention
from senior management.

In addition, because every investment made by a private equity fund in a business must be
liquidated within the life of the fund, it is possible to precisely measure cash returns on those
investments.

That makes it easy to create incentives for fund managers and for the executives running the
businesses that are directly linked to the cash value received by fund investors. That is not the
case with business unit managers or even for corporate managers in a public company.

Furthermore, because private equity firms buy only to sell, they are not seduced by the often
alluring possibility of finding ways to share costs, capabilities, or customers among their
businesses.

Their management is lean and focused, and avoids the waste of time and money that
corporate centers, when responsible for a number of loosely related businesses and wishing to
justify their retention in the portfolio, often incur in a vain quest for synergy. Finally, the
relatively rapid turnover of businesses required by the limited life of a fund means that
private equity firms gain know-how fast.

29
3.2 PRIVATE EQUITY STRATEGIES INVESTORS

Private equity is an asset class that involves the use of equity securities and debt to purchase
shares of private companies or those of public companies that will eventually be delisted
from the public stock exchanges. In 2014, the aggregate capital raised by private equity and
venture capital funds was $495 Bn. With 79% of LPs looking to either maintain or increase
their allocations to private equity in the next 12 months, it is clear that appetite for this asset
class remains strong. Here are 7 private equity strategies investors should know.

7 Private Equity Strategies All Investors Should Know

1. Venture Capital

Venture capital refers to investments made in startups and young companies with little to no
track record of profitability. Venture capital investments are made with the goal of generating
outsized returns by identifying and investing in the most promising companies and profiting
from a successful exit. Venture capital is a growing asset class. According to the National
Venture Capital Association (NVCA), new commitments to venture capital funds in the U.S.
increased from $17.7 Bn in 2013 to $30 Bn in 2014.

2. Real Estate

Private equity real estate involves pooling together investor capital to invest in ownership of
various real estate properties. Four common strategies used by private equity real estate funds
are:

Core: Investments are made in low-risk / low-return strategies with predictable cash flows.

Core Plus: Moderate-risk / moderate-return investments in core properties that require some
form of value added element.

Value Added: A medium-to-high-risk / medium-to-high-return strategy which involves the

purchasing of property to improve and sell at a gain. Value added strategies typically apply to
properties that have operational or management issues, require physical improvements, or
suffer from capital constraints.

Opportunistic: A high-risk / high-return strategy, opportunistic investments in properties

require massive amounts of enhancements. Examples include investments in development,
raw land, and mortgage notes.

30
3. Growth Capital

Growth capital investments are made in mature companies with proven business models that
are looking for capital to expand or restructure their operations, enter new markets, or finance
a major acquisition. Typically, these are minority investments, and companies that take on
growth capital are more mature than venture-funded companies. Such companies generate
revenue and profits that may not be enough to fund big expansions, acquisitions or other
investments. While growth equity may sound similar to venture capital and control buyouts,
there are some key differences.

4. Mezzanine Financing

While some companies might take on growth capital to finance their expansions, mezzanine
financing is an alternate way. Mezzanine financing consists of both debt and equity financing
used to finance a company’s expansion. With mezzanine financing, companies take on debt
capital that gives the lender the right to convert to an ownership or equity interest in the
company if the loan isn’t repaid in a timely manner and in full. Companies that take on
mezzanine financing must have an established product and reputation in the industry, a
history of profitability, and a viable expansion plan.

A key reason why a company may prefer mezzanine financing is that it allows it to receive
the capital injection needed for business without having to give up a lot of equity ownership
(as long as it’s able to pay back its debt on time and in full). Another advantage of taking on
mezzanine financing is that it may be easier to receive traditional bank financing since it’s
treated like equity on a company’s balance sheet.

On the flip side, there are some disadvantages to companies that take on mezzanine
financing. Since mezzanine financing is not collateralized, the lender takes on greater risk.
Therefore, mezzanine financing is typically conducted by unconventional lending institutions
versus standard lending institutions. As a result, interest rates and terms can be much higher
than traditional debt financing.

5. Leveraged Buyouts (LBO)

Leveraged buyouts are conducted when a company borrows a significant amount of capital
(from loans and bonds) to acquire another company. Private equity firms make buyout
investments when they believe that they can extract value by holding and managing a

31
company for a period of time and exiting the company after significant value has been
created.

Leveraged buyouts typically utilize debt to finance the buyout, and the firm performing the
LBO has to provide a small amount of the financing (typically around 90% of the cost is
financed through debt).

The goal of a leveraged buyout is to generate returns on the acquisition that will outweigh the
interest paid on the debt. For the firm that’s performing the LBO, this is a way to generate
high returns while only risking a small amount of capital. Oftentimes a financial sponsor is
involved and the assets of the company being acquired are used as collateral for the debt.
Private equity firms will then either (1) sell off parts of the acquired company or (2) use the
acquired company’s future cash flows to pay off the debt and then exit at a profit.

6. Special Situations aka Distressed PE

Special situations funds specifically target companies that need restructuring, turnaround, or
are in any other unusual circumstances. Investments typically profit from a change in the
company’s valuation as a result of the special situation. Examples of special situations
include: a large public company spinning off one of its smaller business units into its own
public company, tender offers, mergers and acquisitions, and bankruptcy proceedings.
Besides private equity funds, hedge funds also implement this type of investment.

7. Fund of Funds

A “fund of funds” (FoF) is an investment strategy whereby investments are made in other
funds rather than directly in securities, stocks, or bonds.

By investing in a fund of funds, investors are granted diversification and the ability to hedge
their risk by investing in various fund strategies. Unfortunately, funds of funds may be costly
because investors are subject to an additional layer of fees. In addition to the management
fees and a performance fee that’s charged at the underlying individual fund level, investors
have to incur additional fees at the FoF level.

AUM by Strategy

While private equity and venture capital assets under management reached a new high in
June 2014 with $3.8Tn, there has also been an increase in dry powder. Below is a graph

32
highlighting the breakdown in assets under management by strategy. Buyouts, real estate, and
venture capital are the top 3 private equity strategies with the highest assets under
managements. In addition, there has been a rise recently in fundless sponsors and search
funds as a result of an increasing amount of dry powder.

Below is also a graph from Nordic Capital that quickly illustrates some of the differences
between the various private equity strategies.

33
 CHAPTER 4

PRIVATE EQUITY IN INDIA

4.1 INTRODUCTION TO PRIVATE EQUITY IN INDIA

India’s reputation as an assault on the senses is well deserved. Visit any of the country’s 29
states, nearly 8,000 cities and towns, or over 600,000 villages, and one is typically confronted
by an onslaught of vibrant colors, musical sounds, rich smells, diverse languages, and, quite
frequently, utter chaos. Navigating this chaos has become a way of life in India, and by
extension for its business and finance community.

Private equity in India has had a bumpy ride over the past two decades as fund managers
have learned the hard way how to access India’s promise amidst the turmoil. However,
today’s crop of GPs have successfully endured a number of cycles and now carry a robust
tool chest of lessons learned, which may help them pave the way toward a new, more
favorable era for the industry ahead.

A Brief History

India’s earliest private equity pioneers launched their initial funds in the late 1990s. Facing
the dual challenge of convincing both prospective limited partners and entrepreneurs—most
of whom had never heard of the asset class—that the private equity model could work in
India, these forerunners nonetheless enjoyed relative prosperity amidst limited competition.

Between 2000 and 2005, however, the landscape dramatically changed as India began to take
its place on the world stage. Economic liberalization policies implemented in the 1980s and
1990s were beginning to take effect—the GDP growth rate was rising, inflation was
dropping, and new markets were opening up for investment. Then in 2001, Jim O’Neill,
formerly with Goldman Sachs, famously identified India as one of the BRICs— a group of
countries that promised to eventually overtake the developed world in leading the new global
economy. The world wanted to grab a piece of the action and private equity investors were no
exception.

Firms in the market continued to perform well. “Private equity firms enjoyed healthy returns
in India from investments made between 2004 to 2006, or the Golden Era,” recalls Ashley

34
Menezes, Managing Director of ChrysCapital. “You could invest in companies at cheaper
valuations because there was less competition, and these companies benefited from intrinsic
growth within the system. Even if you made bad investments, you could still do well.” CX
Partners’ Jayanta Kumar Basu, Partner, echoes this sentiment, “Prior to 2007, the markets
were friendly and it was a relatively simple business. You could identify companies early, get
a reasonable multiple and then effectively ride some part of the market beta. Multiple
expansion was the primary driver of value.”

Money began to pour into the Indian private equity market. Dr. Archana Hingorani, CEO and
Executive Director of IL&FS Investment Managers Limited, one of the oldest private equity
fund managers in India, notes, “Fundraising pre-2005 was difficult because India was an
unknown entity. We raised four to five funds of small magnitudes, raised every three to five
years, where LPs kept changing over each fund, so you always started from scratch. It’s only
from 2005 onwards when the investment committees of LPs approved an allocation to India
that you saw an ease of raising capital. Certainly in the euphoric years that followed, there
were periods when it took less than a year to raise a fund, even though the due diligence
process was as rigorous as before.”

Indeed fundraising for India-focused private equity funds reached an all-time high by 2008
with US$8 billion in commitments raised (see Exhibit 1). As EMPEA’s statistics exclude
funds allocated to India via pan-Asian or global vehicles, this number understates the total
amount of capital that was flowing into the subcontinent. Alongside this increase in capital
came an explosion in the number of GPs operating in the market—all within a relatively short
period of time. Many of the global firms had already made forays into India, including
Blackstone, The Carlyle Group, KKR and Warburg Pincus, while several new entrants,
including Apax Partners, Apollo Management and Bain Capital, which established its local
office in 2008, took interest. Numerous country-dedicated funds were raised by both local
and global firms in the years leading up to the global financial crisis, including many first-
time funds that were able to close on vehicles over US$150 million in size. According to
EMPEA’s database, over 100 firms launched new private equity vehicles specifically
targeting India between 2006 and 2009.

35
By 2009, however, the party came to grinding halt as the aftermath of the global financial
crisis hit India. Dry powder became an enormous issue for the market as firms struggled to
invest the funds they had already raised, particularly as valuations had become— and
remained—quite high. Furthermore, the slowdown exposed several cracks in the foundation
of India’s private equity model beyond the mismatch in buyer and seller expectations.

A failure to create value in portfolio companies, the lack of exits and macro challenges,
including government inaction, currency depreciation and weakness in the public markets, all
added up to a comedy of errors, with the end result being that India’s private equity
performance did not meet expectations and both GPs and LPs lost money. Not surprisingly, a
consolidation was about to take place across the Indian private equity industry. Numerous
GPs that had raised their first funds in 2007 and 2008 found themselves with minimal track
records and were unable to raise follow-on funds. Several funds did not survive the upcoming
years; those that did had to pause for introspection and reflect upon what went wrong during
the last cycle.

4.2 BIGGEST PRIVATE EQUITY FIRMS IN INDIA

India is a growing emerging market nation with untapped resources and a sizable labor force.
Reflecting its potential, 2019 was a record year for both private equity and venture capital.
The average size of investments grew substantially while the top sectors were banking,
insurance and finance, and consumer technology. Real estate and infrastructure telecom and
IT were also sectors showing significant private equity growth.

Understanding India and Private Equity Investment

36
Private equity is money raised to fund a company through private sources rather than by
issuing shares through an initial public offering (IPO), which is called public equity.

The year 2019 was a record year for private equity in India. Private equity and venture capital
investments rose to their highest level in the last decade at $45.1 billion, according to the
India Private Equity Report 2020 from Bain & Company.

The most popular sectors for investment are banking, financial services and insurance (BFSI),
and consumer technology, but the investment is also high for real estate and infrastructure,
telecom, and IT and information technology-enabled services (ITES). India also saw a
decreasing number of exits throughout the year due to fewer exit opportunities and a weak
macroeconomic environment.

The COVID-19 epidemic is expected to cause a short-term dip in investment activity, as is

the case globally. However, this could present opportunities for investors, according to Bain
& Company, particularly in Software-as-a-Service (Saas) and cross-sector technologies.

4.3 INDIA AND PRIVATE EQUITY INVESTMENT

The introduction and involvement of private equity companies have been a force for injecting
much-needed lifeblood into an array of sectors that previously relied on state dollars, limiting
private financing and innovation. Private equity investment into businesses, such as hospitals
and technology, improves the quality of services rendered and encourages better business
management by decision-makers seeking further investments.

As of December 2020, India had approximately 125 private equity firms specializing in a
range of sectors and investments.2 Private equity companies are located in tier-1 cities only.
In India, Mumbai is a major hub. Here are the five top private equity firms in India, according
to The WallStreet School, India.

Top 5 Private Equity Firms in India

1. The Carlyle Group

The Carlyle Group was founded in 1987 and is one of the world’s largest private equity
companies. The group has invested over $200 billion globally with a focus on the consumer,
healthcare, and manufacturing sectors. The group does not invest heavily in real estate.

37
In May 2020, The Carlyle Group acquired close to a 75% stake in SeQuent Scientific
Limited, the largest animal healthcare company in India. The Carlyle Group has a well-
established history of investing in the healthcare sector. It has invested in Medanta Medicity
Hospital in the National Capital Region of Delhi, and Metropolis Healthcare, which operates
a chain of diagnostic centers and laboratories. Carlyle had invested more than $2.5 billion in
India as of March 31, 2020. Other notable investments include SBI Life, SBI Card, HDFC,
India Infoline, Delhivery, and PNB Housing Finance.

2. Warburg Pincus

Founded in 1966, Warburg Pincus is a New York-based private equity firm with over $60
billion in assets under management. The company invests in SaaS, data and information, and
fintech sectors globally with investments in Ant Financial, Varo Money, FIS, Interactive Data
Corporation (IDC), Avalara, iParadigms, Sagent (formerly Fiserv Lending), Reorg Research,
and Trax.

In November 2019, Warburg Pincus and Bessemer Venture Partners invested in Perfios
Software Solutions, a leading fintech software player, to the tune of approximately $50
million. In October 2020, the company, along with its affiliate Orange Clove Investments
BV, invested $95 million in Home First Finance Company India Ltd, a technology-driven,
affordable housing finance company that provides home loans to low- and middle-income
customers who are building or buying their first homes.

3. Bain Capital

Bain Capital was founded in 1984 and is headquartered in Boston, Mass. It is a leading
private multi-asset investment firm that invests in all sectors. In 2019, according to Mint,
Amit Chandra, managing director and chairman of Bain Capital India, announced that Bain
Capital would invest $1 billion in Indian companies over the following three years. Bain
Capital has invested $2.5 billion in India since 2012. The company has invested in Axis
Bank, Genpact, Hero MotoCorp Ltd, Emcure Pharmaceuticals Ltd, Larsen and Toubro Ltd
(L&T)’s financial services arm L&T Finance Holdings Ltd, and engineering services
provider QuEST Global Services.

4. TPG Growth Capital

38
TPG Growth Capital was founded in 1992. The firm has over $70 billion of assets under
management and has invested almost $2 billion in India. TPG growth’s main focus area is
distressed assets.

According to Forbes, TPG’s first-ever deal was buying out the then-bankrupt Continental
Airlines in 1993. In May 2018, TPG and Shriram Group sold Vishal Mega Mart (formerly
Vishal Retail) for an undisclosed sum, and TPG experienced one of its biggest years of
investments in India in 2018. TPG in India deploys capital across categories: TPG Capital
manages transactions and buyouts; TPG Growth manages the middle market and growth
equity investment platform, TPG Rise is a social impact platform, and Asia Healthcare
Holdings is TPGs healthcare platform. TPG is focused on health care, consumer, financial
services and technology, and media and telecommunications sectors for investments.

5. CVC Capital Partners

Founded in 1981, CVC Capital Partners has total assets under management of around $75
billion. CVC's first investment in India was as recent as 2018. The group acquired enterprise
legal services firm UnitedLex BPO Private Limited.

In Asia overall, the firm is focused on core consumer and services sectors. As of April 2020,
according to VCCircle, CVC had has raised $15 billion of commitments across its Asia
Pacific funds for 65 investments in varied industries.

39
 CHAPTER 5

PRIVATE EQUITY COMPANIES IN INDIA

5.1 TOP PRIVATE EQUITY FIRMS IN INDIA

Private Equity is an essential part in understanding the concepts of Finance. There are two
types of sources available for any company to raise money; one if equity and the other is
debt. Wherein, Equity is further divided into two (2) parts; Public Equity and Private Equity.

When a company issues shares through IPO or through any public market, then the equity
raised is termed as a Public Equity. However, when it is raised through Private sources or
through institutions in a private company, then it is called Private Equity.

There are various Private Equity Funds that are available across the globe and constantly look
for opportunities in private space for funding. Typically Private Equity Investors earn more
returns through investing in private companies as they invest in growth companies and not
the already matured ones. Their investment tenure varies as per the fund strategy and
majority of the private equity players take exit either through IPO or strategic sales.

Like Investment Banking companies, Private Equity Companies or Private Equity fund
houses are located in tier- 1 cities only (major hub in Mumbai). If you’re looking to join a
Private Equity Company as well, then you are required to shift to tier 1 cities only.

40
LIST OF TOP PRIVATE EQUITY COMPANIES IN INDIA

(I) INTERNATIONAL PLAYERS HAVING PRESENCE IN INDIA

1. THE CARLYLE GROUP

Founded in 1987, it is one of World’s largest private equity companies. It has made a
successful investment of around USD 200+ billion across the globe. It focuses on sectors
including Consumer, Healthcare, Manufacturing etc. but not Real Estate.

Headquarters: Washington, DC, United States

India Office: Mumbai

Ticket Size: USD 50+ million

2. WARBUG PINCUS

Founded in 1966, Warbug Pincus is a New York based private equity firm focuses on growth
investments. It has invested in over 780 companies spread across 40 countries. It has more
than USD 60+ billion assets under management.

Headquarters: New York, United States

India Office: Mumbai

Ticket Size: USD 50+ million

3. BAIN CAPITAL

Founded in 1984, Bain Capital is one of the leading private multi asset investment firm
employing more than 1,000 employees. It is a sector Agnostic company which invests in all
the sectors and has no specific sector preference.

Headquarters: Boston, Massachusetts

India Office: Mumbai

Ticket Size: USD 40+ million

4. TPG GROWTH CAPITAL

41
Founded in 1992, TPG Capital is a private equity investment firm focused on leveraged
buyout and growth capital. TPG Growth Capital has over USD 70 billion of assets under
management. TPG growth’s main focus area is distressed assets.

Headquarters: San Francisco, United States

India Office: Mumbai

Ticket Size: USD 50+ million

5. CVC CAPITAL PARTNERS

Founded in 1981, CVC Capital Partners is a private equity and assets management firm
having presence in Europe and Asia through over 24 offices. It has total assets under
management of around USD 75 billion.

Headquarters: Luxembourg

India Office: Mumbai

Ticket Size: USD 50+ million

6. THE BLACKSTONE GROUP

Founded in 1985, Blackstone Group is a private equity, assets management and financial
services focused firm and it has a total of around USD 35+ billion assets under management.

Headquarters: New York, United States

India Office: Mumbai

Ticket Size: USD 20+ million

7. KKR & COMPANY

Founded in 1976, KKR & Co. is a global asset management firm including private equity,
real estate, infrastructure etc. It has a total of around USD 40+ billion assets under
management.

Headquarters: New York, United States

India Office: Mumbai

42
Ticket Size: USD 20 million – 75 million

8. EVERSTONE CAPITAL

Founded in 2006, Everstone Capital is a private equity and real estate investment firm having
presence India and South East Asia. It has a total of around USD 4 billion assets under
management.

Headquarters: Singapore

India Office: Mumbai

Ticket Size: USD 15+ million

9. BARING PRIVATE EQUITY

Founded in 1997, Baring Private Equity is one of the leading private equity and investment
management firms of Asia having a total of over USD 20 billion assets under management.

Headquarters: Beijing

India Office: Mumbai, Delhi

Ticket Size: USD 20 million – 75 million

10. CLSA CAPITAL PARTNERS

Founded in 1986, CLSA is a Pan Asian private equity firm having offices in around 20 cities.
CLSA is managing a total of USD 5 billion assets across multiple sectors.

Headquarters: Hong Kong/ Singapore

India Office: Mumbai

Ticket Size: USD 10+ million

(II) DOMESTIC PLAYERS STARTED OPERATIONS IN INDIA

1. KOTAK PRIVATE EQUITY

Founded in 1997, Kotak Investment Advisors Limited is a part of Kotak Mahindra group.
Their investment strategy is to fund future leaders. Kotak Investment Advisors is into various
businesses other than the Private Equity like real estate, infrastructure etc.

43
Location: Mumbai

Sector Focus: Consumer, Real Estate, Infra, Healthcare, Financial Services

Ticket Size: USD 10+ million

2. CHRYS CAPITAL

Founded in 1999, Chrys Capital is one of the leading investment firms managing a total of
over USD 4+ billion assets through its 8 funds. It has launched its 8th private equity fund in
Jan’2019 for around USD 850 million.

Location: New Delhi

Sector Focus: Consumer, Healthcare, IT, IT services, Financial Services

Ticket Size: USD 30+ million

3. TRUE NORTH’S INDIA VALUE FUND

Founded in 2000, True North is India’s 1st private equity fund which raised money from
domestic market. True North launched India value fund with a combined investment size of
around USD 2 million and focusing towards mid marked sized and profitable companies.

Location: Mumbai

Sector Focus: Financial Services, Consumer, Healthcare, IT

Ticket Size: USD 10+ million

4. MOTILAL OSWAL PRIVATE EQUITY

Founded in 2006, MOPE Advisors Private Limited is an asset management division of

Motilal Oswal group. The focus of the company is to invest in mid-market space.

Location: Mumbai

Sector Focus: Consumer, Financial Services, Real Estate

Ticket Size: USD 10 million – 50 million

5. IDFC PRIVATE EQUITY FUND

44
Founded in 2002, IDFC Private Equity (now Investcorp) is a leading private equity firm
providing investment services in all the sectors. It has a separate sector focused towards
infrastructure services which has a ticket size of over USD 50 million.

Location: Mumbai

Sector Focus: Consumer, Agri, Financial Services, Infrastructure- Social, Rural (agri related)

Ticket Size: USD 5 million – 40 million

6. ICICI VENTURE FUND

Founded in 2002, ICICI Venture fund is one of the oldest private equity funds of India with
currently manages a total of over USD 4 billion assets across major 4 business verticals;
Private Equity, Real Estate, Infrastructure and Special Situations. It has launched a total of 4
India advantage funds till date.

Location: Mumbai

Sector Focus: Private Equity, Real Estate, Infrastructure, Special Situations

Ticket Size: USD 5 million – 20 million

7. CX PARTNERS

Founded in 2008, CX Partners is one of the leading Private Equity fund focusing on mid-
market. Their investment strategy is to focus on product/ service and the budding
entrepreneurs.

Location: New Delhi

Sector Focus: Financial Services, Consumer, Healthcare, IT

Ticket Size: USD 20+ million

8. PREMJI INVEST

Founded in 2016, Premji Invest is one of the fastest growing private equity companies of
India and it has funded over 40 public and private companies till date.

Location: Bangalore

45
Sector Focus: Sector Agnostic

Ticket Size: USD 50+ million

9. KEDAARA CAPITAL

Founded in 2011, Kedaara Capital is an operations-based Private Equity Fund formed in

partnership with CD&R. Kedaara Investment strategy is to invest companies having market
leadership and sound management.

Location: New Delhi, Mumbai

Sector Focus: Financial Services, Consumer, Healthcare, IT

Ticket Size: USD 20+ million

10. JM FINANCIAL PRIVATE EQUITY

Founded in 1973, JM Financial group is a very well-known financial services group of India.
It has business in Investment Banking, Brokerage, Assets Management and Private Equity. It
recently launched a Fund II for growth Capital

Location: Mumbai

Sector Focus: Sector Agnostic

Ticket Size: USD 5+ million

5.2 INDIAN FUNDS OR FOREIGN PE FUNDS

Top foreign funds include the usual biggies such as Blackstone, KKR, Carlyle, TPG, TA
Associates, Warburg Pincus, Barings Private Equity Asia, Apax, Bain Capital, General
Atlantic, Advent, etc. Foreign Bank PE arms such as Goldman Sachs PE, Standard Chartered
PE, etc

Some of the most famous Indian PE funds are Multiples PE, Kedaara, Samara, CX Partners,
Gaja Capital, ChrysCap, Westbridge Capital, True North and PE arms of Indian Banks and
Financial Services companies such as Motilal Oswal PE, Kotak PE, ICICI Ventures, etc

Everstone Capital (Sameer Sain and Atul Kapur) is one of the most prominent PE funds with
significant indian investments but is headquartered in Singapore.

46
Other funds that are family offices of wealthy Indians such as Azim Premji’s Premji Invest,
Narayan Murthy’s Catamaran Ventures, Ranjan Pai’s Aarin Capital, etc. These are family
offices and may be more difficult to classify them as PE or VC on the basis of investing
styles.

Sometimes, the lines between PE and VC might get blurred, but I’m not including VC
firms/primary tech investors such as Softbank, Sequoia, Accel, Kalaari, Matrix partners,
Lightspeed, IDG (Chiratae), Blume Ventures, Helion, SAIF, 3one4 capital etc which
otherwise have a decent presence in India.

Also not considering government related funds such as Singapore’s GIC/Temasek, UK’s
CDC or SWFs like ADIA/Kazanah etc.

5.3 INVEST IN PRIVATE EQUITY IN INDIA

Well unlike investing in mutual funds, whereby you can invest smaller monthly amounts in
the form of SIPs for long term wealth creation, such a model does not exist for private equity
investing. And there are valid reasons for it not being there.

Firstly unlike mutual funds, private equity funds invest in businesses with huge potential.
That being said, these businesses generally take a long time to be mature and even be cash
flow positive. Private equity firms thus generally wait for a long time to exit (sell) their
investments. Effectively these investments are ill liquid. Neither the firm nor any individual
investor can pull out their money as per their convenience. A huge holding period is thus a
deterrant.

Secondly unlike mutual funds which keep investing your money in the capital markets every
month, with private equity that model is not logically feasible. PE firms always invest a lump
sum of money in selected ventures and wait it out for a fee years to find a right time to exit.
They do welcome individual investors but only if you are willing to commit a lump sum
amount for at least a time horizon of 5 years. Most of the PE firms in India do not accept a
ticket size of less than 10 crore from individual investors.

Such a large ticket size, although a deterrant for people who want to be a part of the so called
but very few ‘multibillion’ dollar exits is actually a blessing in disguise. The reason is that
statistically 9 out of 10 ventures fail.

47
Private equity is one of the most volatile asset classes around. It literally represents the ‘all or
nothing’ adage. There is a very good chance that you might not get your money back. This is
extremely unsuitable for small and retail investors who want to invest a few thousands every
month from their income.

Thus summing it up, Private equity always has been and should continue being a field for
institutional investors or HNIs/UHNIs. For everyone else its just like throwing a dart across a
dark room hoping it hits the bulls eye.

KOTAK MUTUAL FUND

Kotak Mahindra Asset Management Company Limited (KMAMC), a wholly owned

subsidiary of Kotak Mahindra bank Limited (KMBL), is the Asset Manager for Kotak
Mahindra Mutual Fund (KMMF). KMAMC started operations in December 1998 and has
approximately 74 Lac investors in various schemes.

History

Kotak Mutual Fund is a wholly owned subsidiary of Kotak Mahindra Bank Limited, and was
established in December 1998. And is currently the 5th largest mutual fund house in the
country with more than 2.37 lakh crore Assets Under Management. It currently operates out
of 86 branches in India with headquarter based in Mumbai, and has around 75 lakhs investor
accounts, with a strong distribution network across the country with more than 50000
empanelled distributors.

It provide wide range of product which can cater to all types of investor with varied risk
profiles. And is currently managing more than 73000 of Equity Assets.

Kotak FlexiCap Fund - Which was earlier known as Kotak Standard Multicap Fund is
currently the largest equity fund of India, with more than 35000 Cr of Assets Under
Management.

In December 2020 it became the first Indian Mutual House to launch Global REIT Fund of
Fund.

Organization

48
Kotak Group is one of the largest Indian financial services group. It has a market cap of INR
2,692.06 Bn and around 50,000+ employees. Its net worth is INR 764.43 Bn. The parent
company of KMAMC, Kotak Mahindra Bank is a constituent of the Nifty 50.

It is one of the first few private firms qualified to manage pension funds in India. It offers
services like banking, asset management, investment banking, life insurance, stock broking
and general insurance.

Kotak Mahindra Asset Management is a wholly owned subsidiary of Kotak Mahindra Bank
Limited (KMBL). It started operation in 1998. Currently, it has an investor base of above 2
million investors. It has a robust distribution network with around 43,000 distributors. The
company is present in 82 cities and has 86 branches.

Notable fund managers of Kotak AMC include:

 Pankaj Tibrewal
 Shibani Kurian
 Harish Krishnan
 Harsha Upadhyaya
 Arjun Khanna

Product & Services

Kotak Mutual Fund follows an institutionalized investment process. It includes investment

universe, research, idea generation, company meeting and idea discussion, investment report,
portfolio action and on-going review. The fund manager is the decision maker for their
portfolios. Its products or schemes include Equity, Tax Saver, Hybrid and Debt related funds.

CHRYS CAPITAL

Ashish Dhawan (born March 10, 1969) is an Indian private equity investor and philanthropist
who co-founded and ran one of India's leading private equity funds, Chrysalis Capital
(ChrysCapital). He has served on the company's board since 1999, but left his full-time
position at ChrysCapital in 2012 after twenty years in the investment management business to
found Central Square Foundation (CSF), a grant-making organization and policy think tank
focused on transforming the quality of school education in India. In 2014, he spearheaded the

49
launch of India's first liberal arts university, Ashoka University, a philanthropic effort of over
forty leaders in education and industry.

In 2012, Dhawan was recognized as the NextGen Leader in Philanthropy by Forbes India for
his charitable work. He also placed 15th on the 2014 Hurun India Philanthropy List, a
ranking of the most generous individuals in India produced by China-based Hurun Research
Institute. His net worth is approximated at $500 million.

Education

After passing out with top marks from St Xavier's Collegiate School, Dhawan went on to
graduate magna cum laude from Yale University with a dual bachelor's degree. In 1997, he
completed an MBA from Harvard Business School (HBS), graduating with distinction. He
currently serves on the advisory board of HBS Club of India and is a member of Yale's
Development Council.

Career

Dhawan started his career in 1992 as the only Indian analyst working for Mergers Group at
Wasserstein Perella & Co., a boutique investment bank on Wall Street. From 1993-1995,
Dhawan worked as a junior associate at McCown DeLeeuw & Co., a small private equity
firm in California, where he met George McCown, who encouraged him to study leadership
at Harvard Business School.

Through the mid-nineties, Dhawan invested proprietary capital in the Risk Arbitrage Group
at New York's blue chip investment bank Goldman Sachs. Returning to India in 1999, he co-
founded ChrysCapital in Mumbai with Harvard classmate Raj Kondur. Despite some initial
challenges and market pressures, ChrysCapital endured and emerged as one of the strongest
players.

Philanthropy

In 2010, Dhawan co-founded the Young India Fellowship, a one-year residential

multidisciplinary postgraduate programme with a focus on experiential learning and an aim to
develop the next generation of India's leaders.

In June 2012, Dhawan transitioned from venture capitalist to educator, founding Central
Square Foundation, a philanthropic fund and policy think tank focused on transforming the

50
quality of school education in India by making early and growth stage grants to education-
focused NGOs and by conducting research on critical issues facing India's education system.

With the support of more than forty philanthropists in 2014, Dhawan launched Ashoka
University—India's first liberal arts university—located outside New Delhi.

Ashish also serves on the board of several non-profits including Blue Sky Analytics,
Akanksha Foundation, 3.2.1 Education Foundation, Teach For India, Centre for Civil
Society, Janaagraha, India School Leadership Institute and Bharti Foundation.

TRUE NORTH’S INDIA VALUE FUND

Private equity firm India Value Fund Advisors has unveiled a new brand identity, renamed
itself True North (Managers), and plans to expand its investment focus to technology
products and services, it said on Wednesday.

“Our name has changed but our values remain intact which defines the core values and
principles that have moulded the functioning of our company for more than a decade," said
Vishal Nevatia, managing partner of True North.

“One of the reasons for this rebranding is that we have a very unique business model whereby
we are combining the business nurturing skills of a conglomerate with the sharpness and
focus of a private equity group. Nobody has done that before in India, and even globally there
are very few examples," added Nevatia.

Along with the change in identity, it also announced a realignment of its sector focus. It has
restructured its business and investment teams in line with sectoral specializations— financial
services, consumer sector, healthcare, and technology products and services.

On 20 September, Nevatia said in an interview that the company is looking to move beyond
the healthcare, financial services and consumer sectors and will add technology and services
companies to its investment portfolio.

He added that India Value Fund saw opportunities in mid-sized information technology
firms, start-ups and other digital businesses, and companies operating in hi-tech areas such as
cloud computing and analytics. Over the past year, the PE firm has developed expertise in
sectors like healthcare, consumer-focused industries (like media and entertainment, radio
taxis, retailing, and food services) and financial services.

51
“We will become sector-focused. We decided that it’s better to do few things, but do them
best. We feel that India has now evolved so even if we are sector-focused, there are enough
things to do. We feel that there is enough depth in sectors. We are adding a fourth sector,
which we haven’t looked at in the past—technology product and services. We believe that in
the next 10-15 years, 80-90% of our investments will be in these four sectors," he said,
adding that the company is now in the process of hiring a senior executive to lead the vertical.

True North, one of the early movers in Indian private equity, and is largely known for
executing control transactions in India’s mid-market.

In the last 17 years, the firm has worked with over 30 businesses and invested over Rs8,000
crore of equity capital.

Currently, it is investing out of its fifth fund, Indium Fund V, and has deployed more than a
third of the $700 million (Rs 4,471 crore) corpus.

The fund’s investments include deGustibus Hospitality Pvt. Ltd, which owns and operates
restaurant brands Indigo and Indigo Deli, non-banking financial company Magma Fincorp
Ltd, and seed company SeedWorks International Pvt. Ltd.

The fund also invested in Atria Convergence, in which India Value Fund had invested
previously.

The most represented sector in India Value Fund’s current portfolio is healthcare; the firm
has invested in five firms in the sector. In December 2015, India Value Fund invested $60
million in Cloudnine Hospitals, a maternity and infant care-focused hospital chain. India
Value Fund’s other healthcare investments are contract research and manufacturing services
firm Syngene International Ltd, hospital chains Manipal Hospitals and Aster DM Healthcare,
and medical equipment manufacturer Trivitron Healthcare.

True North has $500 million in dry powder from the latest fund and an additional $500
million of co-investment commitments from limited partners, or investors in PE funds.

MOTILAL OSWAL PRIVATE EQUITY

Motilal Oswal Financial Services Limited is an Indian diversified financial services firm
offering a range of financial products and services. The company was founded by Motilal

52
Oswal and Raamdeo Agarwal in 1987. The company is listed on BSE and NSE stock
exchanges.

History

Motilal Oswal Financial Services Ltd (MOFSL) was set up by Motilal Oswal and Raamdeo
Agarwal as a broking house in 1987.

The company entered into investment banking in 2005, followed by private equity fund in
2006.

On February 2006, Motilal Oswal Financial Services Ltd. acquired Peninsular Capital
Markets, a Cochin, Kerala based broking company for Rs. 35 crore. The company tied up
with State Bank of India in 2006, Punjab National Bank in 2007 and Axis Bank in 2013 to
offer online trading to its customers.

On January 2010, Motilal Oswal Financial Services Ltd. set up Mutual fund business named
as Motilal Oswal Asset Management Company (MOAMC).

On 2013, Motilal Oswal Financial Services Ltd. laid foundation of Aspire Home Finance
Corporation Limited (AHFCL). The company offers loans for home, construction, composite,
improvement, and extension in India.

Allegations in NSEL case

Motilal Oswal along with few other top brokers have been accused of various irregularities
on NSEL. Agencies including EOW-Mumbai and SFIO have found the top 5 brokers
including Motilal Oswal guilty of misselling NSEL contracts, KYC manipulation, client code
modification, benami transactions & infusion of black money through their NBFCs on the
Exchange platform. The EOW had arrested senior employees of three brokerages namely
IIFL, Geofin Comtrade & [[Anand Rathi in March, 2015. This was followed by the market
regulator, SEBI issuing multiple show-cause notices to the brokers in 2016, 2017, 2018 &
2019 respectively. The EOW-Mumbai in its supplementary charge sheet has also accused the
three brokerages IIFL, Motilal Oswal & Anand Rathi of cheating clients. Based on the
recommendations of SFIO & EOW's report against misdeeds of brokers, SEBI declared
Motilal Oswal along with India Infoline Commodities (IIFL) ‘not fit and proper’ as
commodity derivative brokers, in the last week of February 2019.

53
Awards and recognitions

 Mr. Motilal Oswal, Chairman & MD is awarded as Outstanding Institution Builder of

the year in The AIMA Managing India Awards
 Motilal Oswal wins GOLD for marketing effectiveness at the Global ACEF customer
engagement awards (Awarded for Think Equity. Think Motilal Oswal TV Ad)
 Motilal Oswal TV Ad wins 3 awards at the ABBY Awards for Creative Excellence
 Motilal Oswal Financial Services Ltd wins the Brand of the Year Award at the CNBC
TV18 - India Business Leadership Awards
 MOFSL has been featured in Forbes Super 50 Companies 2017
 Motilal Oswal Securities received two awards for its equity research in IT and
commodity (forex) segments at India's Best Market Analyst Awards 2014, India's
biggest Financial Market Awards also called as ZEE Business Awards 2014.
 Motilal Oswal Financial Services Ltd's Analyst Mr. Jinesh Gandhi won the Best
Market Analyst Award for the categories Equity-Auto at ‘India's Best Market Analyst
Awards 2013 organized by Zee Business.
 Motilal Oswal Securities was awarded with Best Performing National Financial
Advisor Equity Broker Award in 2012, second time in succession.
 CNBC TV18 awarded Motilal Oswal the Best Performing Equity Broker Award in
2010 at CNBC TV18 Financial Advisor Awards 2010
 Motilal Oswal IB team won the Asia Pacific Cross Border Deal of the year award in
2010 and the CEO Ashutosh Maheshvari got India M&A Investment Banker of the
Year award
 Motilal Oswal Securities Ltd. rated as No.1 Broker in ET Now – Starmine Analyst
Awards 2009.

IDFC PRIVATE EQUITY FUND

Infrastructure Development Finance Company Limited, more commonly known as IDFC, is a

finance company based in India. It provides finance and advisory services for infrastructure
projects as well as asset management and investment banking.

Company history

IDFC was incorporated on 30 January 1997 with its registered office in Chennai and started
operations on 9 June 1997.

54
In August 2005 the company's equity shares were listed at the National Stock Exchange of
India (NSE) and Bombay Stock Exchange (BSE) after an initial public offering.

In May 2008, the company entered into asset management by acquiring the AMC business of
Standard Chartered Bank in India, namely Standard Chartered Asset Management Company
Pvt Ltd and Standard Chartered Trustee Company Pvt Ltd; the acquired companies was re-
branded as IDFC Asset Management Company Pvt Ltd and IDFC AMC Trustee Company
Pvt Ltd respectively.

In 2008–09, the company subscribed 100% of equity shares of IDFC Capital (Singapore) Pte
Ltd. During the year, the company established IDFC Foundation to focus on capacity
building, policy advisory and sustainability initiatives.

IDFC Bank started operating banking services on 1 October 2015.

ICICI VENTURE FUND

ICICI Prudential Mutual Fund is the second largest asset management company in India.
ICICI Prudential Mutual Fund was established in 1993.

History

Origin

The AMC is a joint venture between ICICI Bank in India and Prudential Plc, one of UK’s
largest players in the financial services sectors.

With its Corporate Office based in Bandra Kurla Complex, Mumbai, India the AMC has
witnessed substantial growth in scale; from 2 locations and 6 employees at the inception of
the joint venture in 1998, to a current strength of more than 1000 employees with around 120
locations with an investor base of more than 1.9 million investors.

Products & Services

The AMC manages significant Assets under Management (AUM) in the Mutual Fund
segment across asset classes. The AMC also caters to Portfolio Management Services and
Real Estate Division for investors, spread across the country, along with International
Advisory Mandates for clients across international markets.

Mutual Fund

55
The Mutual Fund caters primarily to retail investors.

Portfolio Management Services

The Portfolio Management Services allow high net worth investors to invest in a more
concentrated portfolio aiming at higher returns. In the year 2000, ICICI Prudential AMC was
the first institutional participant to offer the service, and has now got a successful track record
of over 10 years.

Real Estate Business

The Real Estate division caters to high net worth investors and domestic institutional
investors, with ICICI Prudential AMC starting the Real Estate Investment Series Portfolio in
the year 2007.

Major Competitors

A few of the competitors for ICICI Prudential Mutual Fund in the mutual fund sector are
HDFC Mutual Fund, Kotak Mutual Fund, Reliance Mutual Fund, SBI Mutual Fund, Axis
Mutual Fund, Birla Sun Life Mutual Fund, and UTI Mutual Fund.

CX PARTNERS

CX Partners operates as a private equity group specializing in making growth equity

investments. Our strategy is to partner owners and managers of exceptional, innovative
businesses and help them build further upon these strengths.

PREMJI INVEST

PremjiInvest is a private equity firm in India that focuses on investing in long-term

opportunities in the asset classes. Founded 2006 in Bangalore, Karnataka, India, it's portfolio
companies include ServiceMax, Iora Health, Lenskart, Future Lifestyle Fashions, and
PolicyBazaar. As of April 2020, PremjiInvest has made 30 investments. Their most recent
investment was on February 10, 2020, when Iora Health raised $126M. PremjiInvest has had
nine exits, the most notable of which include Zuora, Myntra, and Looker.

KEDAARA CAPITAL

Kedaara Capital is an operationally oriented private equity firm pursuing control and minority
investment opportunities in India.

56
Kedaara combines the strengths of a well-networked, highly experienced local investment
advisory and operating team, with the experience of our international partner, Clayton,
Dubilier & Rice, a pioneering global private equity firm whose investment model blends
financial skills with operating expertise. We partner with entrepreneurs, management teams,
and family-owned businesses and provide deep strategic & operational expertise, consultative
approach, and global connectivity to build enduring value and competitiveness in such
businesses.

Investment Philosophy

Kedaara was founded on a simple premise: market leading businesses are built with a sound
strategy, driven entrepreneurs, and commitment to operating excellence. Our investment
approach blends skilled investment judgment with extensive operating experience. Many
enterprises, CEOs and entrepreneurs have selected Kedaara as their partner because of our
strong reputation for trustworthiness, collaborative working and operational leadership.

We work with potential investee companies, primarily on an exclusive basis, to tailor

transactions that address specific strategic and shareholder issues that matter most to them.
What makes these transactions special is the flexibility, collaboration and sense of
partnership that ensure each party’s needs are met and concerns addressed. Kedaara pursues
investments where strategy, talent management, operational execution, and related business-
building skills can drive significant value creation. While we typically invest between $25-75
million in each investment, we can invest a significantly larger amount (>$200 million) in
select situations.

Kedaara focuses on two transaction themes with a common underlying goal of investing in
well-positioned market leaders that could benefit from Kedaara’s unique skills to realize their
true potential.

JM FINANCIAL PRIVATE EQUITY

Nimesh Kampani (born 30 September 1946) is an Indian investment banker. He is the

chairman of the JM Financial group of companies. His personal wealth was valued at US$
9.54 billion in 2009 making him the 101th richest in India, at that time. The Kampani family's
combined direct and indirect equity ownership of JM Financial Ltd is between 60% and 65%.

57
Livemint called him along with Hemendra Kothari and Uday Kotak the "Three K's" of India's
leaders in investment banking.

In 2014, the court named him as the mediator in the inheritance dispute between Shardul and
Cyril Shroff over the law firm Amarchand Mangaldas, which at the time was India's largest.

Early life and education

Kampani is a commerce graduate from Sydenham College, Mumbai and is a Chartered

Accountant.

Career

Kampani had inherited the family business, and in 2011 he began turning over portions of the
day-to-day operations of JM Financial Group to his son, Vishal Kampani.

Controversy

Nimesh Kampani was reported hiding in 2009 to avoid an arrest in India for payment default
by a Hyderabad company called Nagarjuna Finance of around 100 crores.

58
 CHAPTER 6

CONCLUSION

The purpose of private equity firms is to provide the investors with profit, usually within 4-7
years. It comprises of companies or investment managers that acquire capital from wealthy
investors to invest in existing or new companies. The equity firm will commonly purchase a
company via auction.

Private equity is a form of investment that takes place outside the public stock market
through which investors gain an ownership stake in private companies. The private equity
firm that manages and invests that money via a private equity fund best in India and the
companies the private equity firm invests in.

59
REFERENCES

1. Amenc, N., S. El Bied, and L. Martellini. 2003. ‘‘Predictability in Hedge Fund

Returns.’’ Financial Analysts Journal, Vol. 59, No. 5, Sept./Oct.: 32–46.
2. Amenc, N., and L. Martellini. 2002. ‘‘Portfolio Optimization and Hedge Fund Style
Allocation Decisions.’’ Journal of Alternative Investments, Fall: 7–20.
3. Anson, M. 2002. Handbook of Alternative Assets. Hoboken, N.J., The Frank J.
Fabozzi Series, John Wiley & Sons, Inc.
4. Anson, M. 2004. ‘‘Strategic versus Tactical Asset Allocation: Beta versus Alpha
Drivers.’’ Journal of Portfolio Management, Winter: 8–22.
5. Anson, M., S. Hudson-Wilson, and F. Fabozzi. 2005. ‘‘Privately Traded Real Estate
Equity.’’ Journal of Portfolio Management (Special Real Estate Issue), September:
109–113.
6. Arshanapalli, B., T. Goggin, and W. Nelson. 2001. ‘‘Is Fixed-Weight Asset
Allocation Really Better?’’ Journal of Portfolio Management, Spring: 27–38.
7. Asness, C. 2002. ‘‘Do Hedge Funds Add Value?’’ AIMR Conference Proceedings on
Hedge Fund Management, April: 16–26.
8. Atkins, B, and M. Giannini. 2003. ‘‘Risk Management for Private Equity Funds of
Funds.’’ In L. Jaeger (ed.), The New Generation of Risk Management for
9. Hedge Funds and Private Equity Investments. London: Euromoney Books, pp. 215–
227.
10. Bacmann, J.-F., G. Gawron. 2004. ‘‘Fat Tail Risk in Portfolios of Hedge Funds and
Traditional Investments.’’ RMF Investment Management, white paper. Pfaffikon,
Switzerland.
11. Bank for International Settlements. 2005. ‘‘Triennial Central Bank Survey: Foreign
Exchange and Derivatives Market Activity in 2004.’’ Basel, Switzerland.
12. Banz, R. 2004. ‘‘Where Have They Hidden My Alpha?’’ Pictet Asset Management.
Geneva, Switzerland.
13. Barra, Inc. 1998. ‘‘Forecasting Risk with Multiple-Factor Models.’’ Barra Risk Model
Handbook. Berkeley, California.

60