Anil Ahuja, former Asia head of private-equity firm 3i Group Plc, is seeking to raise $100 million from institutional investors for an India-focused hedge fund, saying buyouts are difficult to achieve in the country.
IPEplus Fund 1, which invests in stocks, bonds and currencies, started in October with $10 million of Ahuja’s own capital, he said. Ahuja, who left the U.K.’s biggest publicly traded private-equity firm in February last year, is seeking to raise the money by the year-end, with the first $40 million by June, he said.
Ahuja, 51, is turning to a hedge-fund strategy as returns from private equity in Asia’s third-largest economy slow and the number of unsuccessful exits has exceeded winning ones since 2006. While India’s growth prospects attracted global firms such as Blackstone Group LP (BX) and KKR & Co. (KKR), the average return of private-equity funds investing in the country fell by more than half in 2013 from 7.7 times in 2004, according to researcher Venture Intelligence.
“There are a handful of people who have made money, but the Indian private-equity domain has not performed,” Singapore-based Ahuja said in an interview on Feb. 26. “The right tool kit for India has to be very different.”
There were 55 unsuccessful exits in 2013, more than double the successful ones, a trend that has stood for six years, according to Chennai, India-based, Venture Intelligence, which tracks the industry. The group defines successful exits as those from which the funds got at least three times the value of the initial investment within six years.
There were 391 private-equity deals in India last year valued at $7.2 billion, compared with 492 deals worth $9.3 billion in 2012, and 514 transactions valued at $10.5 billion in 2011, according to Venture Intelligence. The most were reported in 2007, when there were 532 deals valued at $14.9 billion.
India’s economy slowed in the last quarter of 2013 from a year earlier and investors are awaiting the outcome of elections due to be held by May, with opinion polls showing they are unlikely to deliver a clear winner. The Reserve Bank of India has raised interest rates three times since September to curb inflation that averaged 10 percent since 2012, the worst among Asia-Pacific economies.
IPEplus Fund 1 will invest in asset classes including futures, options, warrants, convertible securities, derivative instruments and synthetic financial instruments primarily related to Indian companies that are quoted on stock exchanges, according to the term sheet of the fund. The Bermuda-listed fund, which seeks to exploit macroeconomic trends, has returned 8.9 percent since inception and targets an annual return of as much as 14 percent net of fees, it said.
Most private equity deals in India have been centered on acquiring minority stakes, Ahuja said. With low shareholdings in companies, private equity cannot influence decision-making in ways that will enhance performance, he said.
Eighty-three percent of the deals from 2006 to the end of February were for minority stakes in Indian companies, compared with 70 percent for the whole of Asia, 32 percent for Europe and 28 percent for the U.S., according to data from Preqin, a research provider on global alternative assets such as private equity, hedge funds and real estate.
“You are hugely dependent on the owner of the company, who does not like to cede control, for good governance of the company,” said Ahuja, who spent 16 years investing in private equity, first with the former Asian private equity unit of JPMorgan Chase & Co. and then with 3i in Asia. “You need to be lucky to make money.”
Ahuja’s new hedge fund is officially managed by a unit of Carlyle Group LP-backed Indian stock broker India Infoline Ltd.. (IIFL) It will charge a 1 percent annual management fee and 10 percent for performance if the net asset value of the fund increases beyond the previous reporting period’s high, according to the term sheet. The fees will be split in an undisclosed proportion between the India Infoline unit and Ahuja, he said.
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