JPMorgan Chase & Co, the US-based financial services major with assets worth $1.5 trillion, earmarked $750 million (Rs 3,000 crore) early this year for private equity investments in Asia.
Interestingly, the $750 million fund is its own capital (in the PE lingo it is called proprietary capital, which means its own money as opposed to the borrowed money).Business Standard's Vandana and Reena Zachariah caught up with Varun Bery, Managing Director and co-head, Private Capital Asia, JPMorgan, who spoke on a range of issues, including the impact of the US sub-prime crisis on PE investments in India, its investment strategy and the crowded PE market in India. Excerpts:
Do you think you have missed out on the early-mover advantage in India?
Not at all. With the right focus and priorities, there should be plenty of investment opportunities for smart money. The Indian market is nowhere near as penetrated by private equity players as other major regions such as North America and Europe. There is still a lot of scope for the market to develop and become more sophisticated.
What are your investment commitments to India from this fund?
There is no explicit investment commitment, but obviously we seek the best opportunity to deploy money. In the current market correction, there would be some very attractive investment opportunities.
We look to invest something in the region of $100-150 million a year in India. This fund will be looking at a range of sectors and would not be focused on one particular sector.
What will be your fund's average deal size?
The average deal size will be close to $50 million and we will invest in mid-market firms. We are looking at companies that have a market cap of $500 million to $1 billion.
The fund will generally purchase minority stakes in these companies. We will not focus on buyouts, but would certainly consider partnering with other corporate and financial sponsor clients, who are pursuing buyouts.
What kind of a role will you be playing in your portfolio companies?
Typically, we would be looking to take a board seat. JPMorgan can bring in sector expertise, investment banking expertise as well as the other broader resources of a full-service financial institution. Also, as required, we can tap our global industry groups to help Indian companies expand globally or find an international strategic partner.
Within JPMorgan, One Equity Partners invests in PE. So then why has a new fund been created?
Generally, a large institution like JPMorgan has a few distinct pools of capital to pursue different strategies. One Equity Partners is focused primarily on doing control transactions. They have been very successful doing mid-market control deals in North America and Europe.
They have also done some minority investments in India in highly specialised sectors, which are a part of their global strategy. The new fund, Private Capital Asia, is more about taking non-controlling stakes in mid-cap companies, exclusively in Asia. The skills and requirements are very different and hence the separate teams.
What kind of an exit strategy will your fund essentially follow?
Generally, we like to have more than one exit option. Typically, we like to have the ability to take a company public and dispose of our stake in the stock market. Alternatively, we would position a company for a sale to a strategic buyer.
How much do you expect the private equity market in India to expand?
Already, the market is significant and there is still room for it to become bigger and sophisticated. There are several emerging sectors that are hungry for capital to fuel the strong growth ahead of them. Also, there are a whole lot of Indian companies looking to fund overseas growth and acquisitions.
How competitive has the mid-cap buyout segment become?
I believe it is starting to get very competitive. To be successful in this market, one needs to be clear about what value one brings to the table. Bringing just money is not enough and that's why the investing arms of JPMorgan will spend a lot of time defining how we put the attributes of a full-service financial institution to work for our investee companies. Our competitiveness will be defined by how easily our value proposition is understood.
Has TVG Capital Partners invested in India before this?
Yes, our investing history in India dates back to the mid-nineties. And our most recent investment, completed last year, was in a mid-cap listed company called Everest Kanto Cylinders that is a leader in manufacturing CNG cylinders. Over its history, the principals of TVG Capital Partners have evaluated and made several Indian investments. We are very familiar with the environment here.
Are you comfortable with the regulatory environment in India?
India has been one of the most supportive markets for private equity. I think it is highly significant that there has been a lot of money invested by global players and that the flow of money in and out of the country has been relatively seamless. So compared to most other countries, I would say India is an attractive destination.
Has the turbulence in the global market hurt the fund-raising plans of private equity funds?
With the correction in the public markets, some large institutional investors could be over-allocated to private equity and may slow the pace of investing in new Asian funds.
However, despite the current conditions, the firms with the best track records will continue to get money. And in the near to medium term, the pace of investment activity may pick up due to the more attractive opportunities available.
