April 03, 2018
Private Equity has never been about ignoring the fundamentals: the commercial nuts and bolts of any project which are essential for the creation of real and long term financial returns rather than focusing on short term and often illusory market fluctuations. Ask Warren Buffet and Anthony Bolton (of Fidelity) why they have been so successful over the years and they will undoubtedly point to the importance of active investment strategies, taking a keen interest in the detail of the project and being prepared to hold the stake stock long term until the exit opportunity is right.
And then flip that analysis on its head: the kind of sustainable, long term investments which most investors look for will, by parity of reasoning, inevitably attract increased levels of private equity investors, looking for long term and above market rate returns. So, in assessing the quality and character of India’s underlying economic activity, it is interesting to note the striking increase in private equity participation over recent years.
Take Blackstone, for example, which reported returns in excess of 30% on its Private Equity holdings on the subcontinent since 2011, and that’s the highest for any of its markets (the next being China, where the Fund booked returns in the order of 25%). And scotching the previous glib perception that it might be easy to make money in India but difficult to get it out, Blackstone’s Senior Managing Director in India, Amit Dixit pointed out that “all of that has changed now, since 2014 there has been a good exit environment” leading naturally on to increased stake building by Blackstone on the subcontinent so that it no logner describes itself (in Dix’s words) as a “passive investor”.
Blackstone is recording exit multiples on the subcontinent of up to six times investment value, and its private equity funds have total investments of USD 3.5 Billion in India with plans to add a further USD 2 Billion over the next five years.Its 2013 investment in Trans Maldivian Airways generated an exit multiple of 4.8 when the company was sold to Bain Capital in December last year (for USD 500 Million), and it secured a six fold return on its stake in SH Kelkar following the sale of a further part of its stake last year.
But of course what all of this really tells us is just how important local knowledge is to any private equity investment strategy. There is no substitute for an informed understanding of the workings of the project on the ground, a working knowledge of the nuts and bolts of the business capable of delivering a sustainable return on investment over the long term. And that can be difficult in India where many businesses are family run or owned and wary of outside investors.
That’s where Red Ribbon Asset Management is different from its competitors, because it has placed Indian markets at the heart of its investment strategies since the company was founded more than a decade ago: priding itself on understanding more about India than virtually any other asset manager, with a team of more than a hundred expert analysts and advisers living and working on the ground in India’s key areas of economic expansion, seeking out the best and most profitable projects in the daily workings of its local markets. The Red Ribbon Private Equity Fund is structured to make the most of the opportunities offered by Indian markets in this, the fastest growing large economy in the world.
The reason why Private Equity activity is so important for any economy is because it acts as a highly effective bellwether for long term, sustainable projects that have real prospects for growth. Private Equity investment has never been about the short term, and as the article points out, its success is dependant on getting to understand the detailed nuts and bolts of the business being invested in.
The current surge in Private Equity participation in Indian Markets (particularly the Real Estate Sector) is very important: it points to real, long term growth prospects in the subcontinent’s markets. And it strongly suggests too that the historic difficulties of investing in local Indian businesses (which have been wary of overseas investors calling for a stake in the business), is now well and truly a thing of the past. Recent activity from the likes of Blackstone is proof enough of that.
And of course Red Ribbon is perfectly placed to take advantage of these trends: with exactly the sort of local, nuts and bolts knowledge of Indian markets that has underpinned the rapid growth in private equity on the subcontinent. The Red Ribbon Private Equity Fund is geared specifically to take full advantage of these opportunities, and our specialist team of advisers in India’s development hot spots certainly won’t be slow in searching them out.