'PE investor can play in institutionalising governance practices in investee companies'

A constantly evolving playground of opportunities is available to private equity Fund Managers in India. Given that each sector is in a varying stage of evolution and newer white spaces emerge with each passing period, an agnostic strategy provides the Fund Manager the flexibility to build a portfolio mix with the appropriate risk return profile. As each Fund Manager builds a unique portfolio depending on where he/she chooses to play with respect to choice of sector, stage and nature of deals, it is possible that the return variation between the top quartile funds and the median funds could be a lot more in India over the developed markets. In my view in such an ever changing market like ours, it pays to be nimble footed and opportunistic to pluck the right deals at the right value.

COLUMNS A Limited Partner Perspective: Anubha Shrivastava, MD Asia, CDC Group  A generic perspective: Claudia Zeisberger & Michael Prahl of INSEAD

As issuers get more selective, local network and knowledge backed by speedy decision making are critical to winning the right deals in the market. Most of the Indian PE deals are minority equity with very few control transactions. As a result, companies will continue to be run entrepreneurially - value will be built by creativity and ability to deal with uncertainty/ambiguity. So what does it take to be a successful PE Fund Manager (with a minority equity) backing an entrepreneur in an ever changing environment?

One can argue that PE investors ask the pertinent questions around growth, profitability and so on. But in a growing market where new entrants constantly challenge incumbents, companies need to constantly evolve their strategies and recalibrate their growth plans. Partnering with such companies is much more a journey where the destination keeps evolving as you go along. In such circumstances, it helps to be more exploratory in thought process so as to elicit a better response from the entrepreneur. The ability to exercise influence over the entrepreneur to make the right choices in an imperfect ambiguous market place is a lot more valuable and helps to build a partnership of trust between the two parties. As a trusted coach and mentor for both the Company and the entrepreneur, the PE investor can bring in a dispassionate view on the business as well as cross pollinate insights from other businesses where they have invested in. In this process of being a sounding board, the PE investor provides a lever to the entrepreneur and his team to deliver to their full potential. This to me is the real value addition that a PE investor can bring to the table. Many PE funded enterprises have created a lasting impact and many more new generation entrepreneurs are coming into the limelight.

The risk however of being a value adding partner is that a Fund Manager who claims to know everything about the business can at times be value destructive. What baffles me most is when people ask what positive actions did you influence as an investor? But the reality is that your role as a value adding investor is a summation of decisions you influenced positively and more importantly the quicksand situations that you helped the Company avoid. Many a times, this could differentiate a success story from a Company that went extinct.

Lastly, I would like to emphasise the role a PE investor can play in institutionalising governance practices in investee companies. In my experience, transparency and perception of good governance will always differentiate the wheat from the chaff in the long-term.

Renuka Ramnath, Founder, Managing Director & CEO, Multiples Alternate Asset Management is one of the veteran private equity investment managers in India. As former head of ICICI Ventures she has been one of the early builders of this investment space.