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Renuka Ramnath moved out of ICICI Ventures in 2009 to start her own alternative asset management firm, Multiples.
A pioneer in the Indian private equity (PE) fraternity, she is credited with spotting opportunities such as Infoedge, Pantaloons and Deccan Aviation quite early during her stint at ICICI Ventures. In her new venture, Ramnath is raising a $500-million PE fund.
This year and 2008 were the toughest for fund-raising by PE funds globally. How do you see the scenario in 2010?
The slowdown of 2008-2009 was good in some ways. It helped separate the wheat from the chaff in that fund managers with credible track records and clear strategies managed to raise funds from both domestic and international investors.
As we get past the financial crisis, 2010 will see more allocation to risk capital. As a result, private equity will benefit, However, LPs (limited partners) will conduct stringent checks and due diligence and continue to remain selective on who they back.
Consumer sectors and infrastructure were the toast of 2009. Which are the sectors that you see coming into the spotlight in 2010?
The impact of the financial crisis in India was limited, primarily because India is a resilient internal demand-driven economy. The ability and willingness of the Indian middle class to spend on retail, healthcare and education is likely to continue and shore up demand in 2010.
As we get into 2010, we have seen consumer durables posting record growth in the last quarter of 2009. Infrastructure by nature is a slightly different asset class as it is capital-heavy, regulation-intensive and has a long gestation period. We are certain that there will be a lot of growth capital investment opportunities in infrastructure-related services.
Exits have become one of the major issues for PE funds. How do you see that shaping up in 2010? Will we see a lot more exits next year than in 2009?
With buoyant public markets, there may be deals that are ripe for exit in 2010, either through the initial public offer route or through the secondary and strategic sale route. However, as the Indian PE market develops, we will see a greater number of secondary sale of LP interests. I had pioneered the secondary sale of LP interest in India and there is a lot of action waiting to happen here.
What are the challenges that private equity funds are likely to face next year?
We saw too much money chasing too few opportunities in 2006-2007. There was very little juice left in deals that we passed at that point in time. In the hindsight, it was a good move. With capital markets picking up, we should not get ahead of ourselves in valuing opportunities in 2010. I hope that all stakeholders will put the experience of the last couple of years in perspective while consummating deals in 2010.
What is the outlook on valuations, deal sizes, managing portfolio firms and meeting expectations of limited partners?
India is still a capital-starved economy where long-term capital can be put to work to create valuable enterprises and successful entrepreneurs.
From a mid- to long-term perspective, investing in chosen private enterprises in India has the potential to generate alpha returns for LPs. Like in the West, we will see more PE players taking active stake in their portfolio companies and playing a role in creating and adding value.
This will necessitate a greater stake and therefore deal sizes are likely to go up from here. On reporting to LPs, there will be greater emphasis on transparency and exchange of information with LPs on a regular basis.
As investors of third-party capital, we have a fiduciary responsibility of establishing best practices in management and reporting. At the end of the day, building good companies is all about keeping in mind the interests of all stakeholders.
