FA: What is Kotak's past experience in the private equity space?
Ramaseshan: Kotak launched the India Growth Fund in 2004 with a corpus of $160 million to invest primarily in unlisted private companies with unidentified potential. In less then two years, we have had unprecedented deal flow of more than one deal per day.
What is the focus of your new fund?
Kotak India Focus Fund (KIFF) will use the private equity approach (close ended fund, long term investment approach, long only positions, buy and hold strategy) to buy only listed equities (easy entry/exit). We seek to take advantage of the excessive short term focus of the equity market to buy at attractive valuations (high margin of safety). We will also follow an active advisory strategy with the management. We have defined this approach as quasi private equity.
What are features of Kotak India Focus Fund?
KIFF, one of the first India-dedicated quasi private equity funds, aims to achieve long-term capital appreciation by investing in listed equity of mid market companies in India through secondary markets, private investment in public equity deals and the IPO route thus exploiting windows of buying opportunity.
The absence of redemption pressure coupled with the ease of entry and exit will ensure a long-term approach to investing which maximizes value creation for the investor. Further, we will double up as advisors who provide strategic and financial inputs to unlock the hidden value of the investee company. This will give investors a chance to participate in the Indian equity mid-market growth story by bringing together the best features of listed equity and private equity investment.
The fund will follow a buy and hold strategy and proposes to invest over an 18 month period. The fund will be a 4+1 year closed ended structure, with phased drawdowns and repayments. Redemptions will be made as each investment is æharvestedÆ. The fund will not re-invest sale proceeds.
What kind of investors are being targeted?
Large institutions and family offices.
What are the criteria for investments?
Typically, investments will be in the $5-15 million range through which we would look to buy ideally up to 10% of the company. The fund retains the flexibility to buy up to 14.99% of the investee company. The group plans to raise $200 million for the fund from institutional investors and family offices. The first close should be at around $100 million.
What is your background?
I recently joined the Kotak Group as the principal investment manager for KIFF. I bring over 15 years of aggregate experience in financial services, spread across asset management, corporate finance and corporate banking which equip me well to manage assets with a long-term value based approach and to provide post investment value add to management, where feasible.
I spent the last two and a half years managing Indian equity and property assets for family offices using a deep value, long-term investment approach. The investment approach involved taking significant stakes in mid-market companies, and providing company management with post investment value add, where feasible.
The private equity space in India is very crowded: what is KIFF's differentiating factor?
India currently is a relative haven of modest valuations and proprietary deal flow which has led to more then a hundred Private Equity firms actively operating. This corroborates the immense scope of this segment.
KIFF is among the very few Indian equities funds with a mid market investing approach with a three plus year view on the company. Our differentiation versus other mid market funds is on account of the ôactivist roleö we will play with investee companies. Mid-market companies in India have a compelling need for advisory services; their size however prevents them from access to truly global advice. Our advice to these companies will be focused on unlocking value: primarily financial advisory (capital re-structuring, fund raising) and strategic advisory (global industry trends / capital structures). Our interests are firmly aligned with the investee companies and we will gain from capital appreciation (not from charging them fees).
India's booming stock markets have provided an alternative avenue for many companies to access funds and made PE investing more challenging. What do you feel?
It is my opinion high-quality mid-market companies do not need just ôaccess to capitalö; they need to work with partners with a medium term horizon who provide solutions to the companyÆs growth ambitions. We seek to assist our investee companies through the value unlocking phase.
We believe that the quasi private-equity model will evolve into a powerful mechanism for making alternative investments and unlocking hidden value in companies thus facilitating corporate transformation.