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|How India's super-rich are growing their personal wealth|
Edition:Mar 16, 2014
Mohit Burman, Director, Dabur India
Most times, Prakash Parthasarathy barely has a moment to breathe. The chief investment officer of PremjiInvest, a family office that handles Wipro Chairman Azim Premji's personal wealth, keeps jetting from one meeting to another in different corners of the country. Late in January, for instance, he hopped from a National Stock Exchange board meeting in Delhi to a meeting of portfolio company managers in Mumbai and then a gathering of financial service companies in Chennai - all within a few days. Parthasarathy says as an investor he has to be on top of things all the time. "We are always meeting people to calibrate ourselves - where we stand and when inflections are going to happen," he says.
Parthasarathy is clearly good at spotting those inflection points. In the seven years since he took over the reins of PremjiInvest, his investment corpus has grown from about Rs 1,500 crore to Rs 10,000 crore, making it the largest family office in Asia. PremjiInvest works like an asset management company - it invests in listed equity, private equity, structured and fixed income instruments and real estate. Listed equities - largely in financial services, and the consumer and technology sectors - account for nearly two-third of its corpus. The company does not make strategic investments. So far, PremjiInvest has put money into around 60 companies and made some 20 exits. Its average holding period is 54 months while exit multiples have been as high as five times the investment.
So, what exactly is a family office? It is a firm that takes care of the day-to-day administration and management of the funds of a super wealthy family. The concept is relatively new in India with only about 50 family offices managing an estimated $15 billion today. But with the number of dollar millionaires in the country increasing steadily, it is one of the more popular avenues Indias super-rich use to grow their wealth. Many are also setting up venture and angel funds, building businesses from scratch and even investing money in venture funds run by other people. Most leading industrialists such as the Ambanis, the Burmans and the Mittals have already set up family offices or venture funds to manage their wealth. Experts say at least five to seven family offices and many more venture funds are set up in India each year. According to Credit Suisse estimates, India had 182,000 dollar millionaires in 2013 and the number is expected to rise to 302,000 by 2018.
Where do these companies put the super-richs money? Traditionally, rich industrialist's invested their personal wealth in low-risk asset classes such as government bonds, fixed deposits, realty and even gold. But in recent years, they have changed their approach: they now look for newer and riskier avenues that promise phenomenal returns. Much like private equity investors, they pick up stakes in companies with the idea of exiting later, but have a longer exit window. They invest in public limited companies as well as start-ups in sectors such as technology, e-commerce, health care, education and financial services, where it is easy to sell stakes. They avoid sectors such as infrastructure and capital goods which are more sensitive to the vagaries of the economy. "In mature markets, wealthy individuals have been investing in risky assets. In India, its still a new concept. In future, we will see more wealthy individuals focusing on a high-risk, highreturns model," says Sasha Mirchandani, Co-founder of Indias first angel investment group Mumbai Angels.
Prakash Diwan, Director at Altamount Capital, a firm that has handheld people setting up family offices, says these individuals ring-fence all deals before investing in high-risk, high-return assets. "When they give equity, they make sure that they have a proper exit route either through the allotment of preferential shares or other instruments (such as convertible debentures)," he says.
Investment is all about hits and misses. But most of these investment companies have notched up more hits than misses despite their approach to risk. Take PremjiInvest. Some of its successful investments include Dish TV India, JustDial, FabIndia and Marico. PremjiInvest also has stakes in HDFC Bank and Federal Bank. One of its bad investments was Chennai-based retail chain Subhiksha Trading Services, which was shut down in 2009 due to severe debt problems and cash flow mismanagement. "We have our own success and failures. In economy-sensitive sectors, our assumptions have not panned out the way we wanted," says Parthasarathy.
Parthasarathy, an engineer with a gold medal from IIM-Bangalore, has seen many investment cycles over the years from the 1995 financial crisis to the dotcom bust in 2000. He was a research analyst in the US covering IT companies when he first got in touch with Wipro in 1995 and was advising Premji when Wipro was still in the process of becoming a large IT services firm. The years of experience have helped since he became the top boss of PremjiInvest in 2006 with a team of three which has grown to 30 today. He tapped his financial acumen for one of his more successful investments in Bata about six years ago. "Batas management was changing the organisation, improving cost structure and expanding its market footprint. We got in at the right time. The investment is doing well for us now," he says.
Another successful investment was its bet on Bangalore-based cancer hospital chain HCG. B.S. Ajaikumar, Chairman, HCG, remembers a meeting with Azim Premji in 2007. The meeting was set up by V. Raja, former CEO of GE Healthcare India, to explore the possibility of Wipro GE Healthcare and HCG working together. In the middle of Ajaikumars PowerPoint presentation, Premji stopped him and asked if he could invest in HCG. Ajaikumar, who was unprepared for this offer, merely grinned and moved on. But after the presentation, Premji asked again. Ajaikumar told Premji to send over his people and the deal was closed in April 2008. Since Premjis investment in HCG, its revenue has grown from Rs 61 crore in 2008 to Rs 500 crore this financial year.
NRN AND CATAMARAN
About two years before retiring from Infosys, its co-founder N.R. Narayana Murthy sold part of his stake to set up venture fund Catamaran Ventures. It started with angel investing but soon realised there were many angel funds already and turned to public-listed companies. Today, the $130-million Catamaran is cutting deals across sectors, making mezzanine investments, public market investments and investing in other angel funds.
Catamaran learnt the hard way. A few days into its existence, in March 2010, it invested in SKS Microfinance prior to its initial public offering (IPO). SKS Microfinances IPO was successful but after the enacting of the Andhra Pradesh Microfinance Regulation Act, the entire microfinance sector was in trouble. SKSs valuation tanked, leaving a gaping hole in Catamarans pocket.
Arjun Narayan, the Massachusetts Institute of Technology graduate who heads Catamaran, says the company has a list of negative and positive sectors. For example, it will not touch realty, heavy industry or infrastructure and prefers cross-border and consumer related business. "Barring rare exceptions, our family office will not engage in growth investing either directly or indirectly because we have had some bad experiences. Similarly, we do not subscribe to exotic wealth management products. We prefer to keep things simple," says Narayan.
Catamaran has investments in some 20 companies directly and close to 100 indirectly through other angel funds where it acts like a limited partner. "We have invested in some promising young angel fund managers. There is probably one start-up a month in India that, in some part, we have funded," says Narayan.
One of Catamarans favourites is Gurgaon-based Hector Beverages. It invested in the energy drink maker in two rounds. Narayan says the passion of its four promoters is impressive. And Catamarans role goes beyond just a silent partner. Though unwilling to divulge details, Narayan remembers how he helped a closely-held mid-cap public company clarify its strategy. "We even crafted their investor presentation template. This is the type of work one traditionally does for private companies but our relationship with the CEO allowed us to do it for a listed company," says Narayan.
Investing in start-ups also excites Ranjan Pai, CEO and Managing Director of Manipal Education and Medical Group, who co-founded Aarin Capital with former Infosys director T.V. Mohandas Pai in 2012. Both the Pais dedicated their personal wealth - $40 million - to start Aarin, which funds health care, life sciences and technology-based start-ups. It has invested some $30 million so far in close to a dozen firms. Its largest investment is the $8-million funding of US-based Insightra Medical.
Ranjan Pai says one of the biggest problems with start-ups is that they dont pay attention to basics such as accounting norms, constituting boards or appointing independent directors. "We help them in compliance-related issues, operations and managing finances," he says.
Some investments can be unconventional. Mohit Burman, a fifth-generation member of the Dabur Group, owns three sports league teams. He is co-owner of Kings XI Punjab, which participates in the IPL cricket league, owner of the Mumbai franchise of the Indian Hockey League and the Pune franchise of the Indian Badminton League. But Burmans affection for sports has nothing to do with financial gains. "Sports is not a business. If you put money in sports, assume that its gone. Its something that I enjoy doing," he says.
The Burmans have not set up a family company so far. But they began investing their proprietary money quite early, especially in financial services, both individually and together. In the 1990s, when the Indian economy was opening up, many foreign companies were looking to enter India and needed local partners with deep pockets. The Burman family saw the opportunity and tied up with the likes of ABN AMRO, Fidelity International and Aviva. Around the same time, it also bought stakes in some domestic companies such as beleaguered Punjab Tractors, Lord Krishna Bank and Vishal Mega Mart. "The idea was to leverage our connections and get into these businesses," says Mohit.
Over the years, the family has divested its stake in many of these ventures such as ABN AMRO, Lord Krishna Bank and Fidelity, but at the same time it continues to invest in new ones. The most recent investment was in the $40-million Asian Healthcare Fund where Anand Burman and his uncle, V.C. Burman, have put in money. Other family investments in recent years include Universal Sompo General Insurance, Espirito Santo, DMI Finance, Healthcare At Home and bitcoin exchange itBit. Punjab Tractors and Aviva remain their biggest investments. The family still owns a 74 per cent stake in Aviva India, but exited Punjab Tractors in 2007 with a hefty profit. Mohit says its still too early to talk about returns in new investments. "In case of Punjab Tractors and Aviva, we entered at the bottom of the curve and therefore maximised our returns. In Aviva, its already 12 years, we havent exited yet. Aviva is profitable for us," says Mohit.
Media baron Ronnie Screwvala sold his 70 per cent stake in UTV Software Communications to US-based Walt Disney in 2011 for some Rs 2,000 crore. Part of that money is now being used to fund start-ups through Unilazer Ventures, a company he founded in 2012. Unilazer focuses on three areas: creating brands, investing in companies in the consumption sector and increasing the market size in the sectors it enters. "I would like to restrict myself to two or three sectors but all will have a common theme, they will be consumer facing," he says.
Unilazers portfolio has some 10 companies such as online lingerie retailer Zivame, housing finance provider Micro Housing Finance Corp and quick service restaurant InBetween. Unilazer picks up a 30 to 45 per cent stake so that it can work with entrepreneurs to scale up and help their branding efforts. "As an entrepreneur, your ability to add value is very different from that of a private equity investor. Some PE firms are into the business of growing the market share or top line. They are looking at a two-to-four-year horizon for unlocking value. We are trying to get the fundamentals right. Everything is not about numbers," says Screwvala.
Peyush Bansal, founder of online optical store lenskart.com, swears by Screwvala. In February last year, Unilazer and IDG Ventures invested Rs 53 crore in Valyoo Technologies, the parent company of lenskart.com. Bansal says Screwvala taught him to channelise his energies better. "Earlier, we were focusing on everything - spectacles, sunglasses, watches and bags, but today we are putting 80 per cent of our resources behind spectacles," he says. Last year, lenskart.com was selling 50 to 100 spectacles a day; it is now up to 1,000 spectacles a day.
Ultimately, all family offices have one goal: to make more money. But unlike private equity investors, they are not in it for the short term. They have the luxury of time which gives them a tremendous edge. "Family offices are not forced to invest a certain amount in a fixed time period, so they can be flexible in terms of how much they invest per company, how much ownership they take and whether or not they require board seats and operating control," says Catamarans Narayan.
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