"We coach and move on to the new team, while the fame and money would belong to the stars," he says. Being a part of the global private equity firm with $39 billion under management with presence across Asia, Europe and North America and expertise ranging from aerospace and defense to retail, Wayne is counting on leveraging the firm's global experience in producing superior returns for the fund.
Currently, Wayne is scouting for investment opportunities for Carlyle's third Asia Growth Capital fund, which raised $668 million in June this year. With a mandate to invest in India, China, Korea and Japan, Wayne plans to invest $100 million every year in India.
He talks to N Mahalaxmi about the fund's investment approach and what his firms brings to the table.
Where do you find value in the Asian region?
We find value in China and India. 100 per cent of the new fund portfolio is in these countries since we have no pre-conceived notions on allocations to different countries.
Right now, both India and China together are the twin engines for this particular fund. India is the core because it offers growth and globally on a risk-adjusted basis looks extremely attractive.
India's advantage over competing markets such as China, Russia or Brazil, include a sound institutional framework, well-developed financial markets, global competitiveness in a diversity of sectors, including high-value knowledge-oriented sectors such as information technology and pharmaceuticals, increased transparency in accounting practices and consistently attractive returns on investments.
India offers a broader set of opportunities than countries like Korea and Japan because the macro economic environment is on a growth mode coming from a small base.
Thus all sectors, which we consider mature in countries like Korea and Japan still offer growth in India. I would say the key factor contributing to India's relative attractiveness, is the combination of a robust macro story, strong bottomline profit orientation of high-growth private Indian companies and a sophisticated highly liquid domestic capital market.
Can you tell us about your investment approach?
Our approach is very simple. We try to find growing businesses in whatever sector they may be in and try to help them with our resources in whatever way from inside India and through our global resources.
We look for companies with consistent history of topline and bottomline growth of above 30 per cent (ideally above 50 per cent), a history of profitability higher than peers and players that are either already among the top three in a sector or have the potential to be there.
We are looking at the top of the pyramid in any sector. We invest in well established businesses with proven business models. We don't like to invest in promises. With our kind of resources and our capital base we don't need to invest in early stage business. We don't fund start-ups, we don't fund ideas.
Does this strategy promise higher returns compared to early-stage investment strategy?
In Asia, we have proven that this strategy can deliver superior returns than taking the early stage risk. The key insight from our experience is that it does not pay to take on the 'early stage' risk in emerging markets. This is because emerging markets are already full of risks, which are less prevalent in mature markets.
Also, emerging markets offer a plethora of 'non-early-stage' growth opportunities, which are no longer as easy to find in mature markets.
The only way to generate extra-ordinary returns in mature markets like the US is by taking high risks. You don't need to do that in a country like India or China. Here the traditional industries are high growth industries as well.
Why would a company showing consistent growth require private equity investment at all?
A company that is growing by 30-50 per cent a year is always constrained by capacity and its ability to acquire new customers to sustain that growth. We open doors for them. We can give them knowledge and experience from our other investments in all other markets.
With so many funds sitting on huge amounts, money itself is cheap now. It is the additional things that a PE investor can do for a company that counts. There are very few private equity players across the world with a broad set of industry knowledge that Carlyle can boast of.
Can you give some instances of how you have helped your portfolio companies?
We play a very pro-active role in terms of shaping the business strategy, facilitating organic and inorganic growth and expansion in the domestic and global markets for all our portfolio companies.
A case in point is Newgen Imaging, an integrated provider of publishing and data services. We have helped the company attract and recruit senior management. We work actively in shaping business strategy and offer complete assistance in inorganic growth and acquisitions. As of now, we are helping the company enter the Japanese market.
Carlyle has helped QuEST, a world leader in engineering services, evolve from being a largely US-centric company to a more nimble best shore services provider. We have helped the company de-risk its business by diversifying its client base.
For instance, we helped the company pitch for Rolls Royce, which is today a significant customer. Leveraging on our relationships in the sector, we are actively assisting the company in various inorganic initiatives, including a very large acquisition of a technical publications company from one of United Kingdom's largest aerospace companies. We are assisting them in recruiting a CFO and in evaluating the possibility of listing on international stock exchanges.
Similarly, in the case of our latest investment Claris Lifesciences, we are identifying an investment bank to help the company raise funds via an external commercial borrowings program and are talking to potential investors to drive subscription. We are also negotiating for disinvestment of a non-core part of the company's business and helping maximise returns.
How do Indian companies compare with other Asian companies?
Indian promoters are more worldly. Their organisations are run more like a western company, closer to the standards of western companies, process and structure are more solid than Chinese. At a general level, in a steady state, Indian companies have a higher profitability than Chinese companies.
How do the capital market cycles influence your decision making?
We don't pay much attention to capital market cycles. Right now, the capital markets are in a high state, but as long-term private equity players that does not matter.
A high market, is a sellers' market and it is time to harvest, which we have been doing. We have had some successful exits recently. But then when the market drops, it is not the end. It turns into a buyers' market. So we do not let the volatility of the capital market influence our business decisions.
What businesses appeal to you right now?
We find materials, retail and real estate business quite interesting currently.
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