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Quadria Capital’s co-founder Amit Varma on first close of Asian healthcare fund, countries in focus and investment sweet spot 

After acquiring Milestone and Religare’s jointly run healthcare cum education fund in India, Quadria has made first close of its new fund at $107 million.

Quadria Capital, which invests in healthcare sector in South Asia and Southeast Asia, has announced the first close of its second fund at $107 million. Founded by Amit Varma and Abrar Mir, it is targeting the final close of the fund in the second half of 2014. The fund would be chasing deals in healthcare delivery, life sciences, medical technology and associated healthcare services. Early this year Quadria acquired the PE firm Milestone Religare, a 50:50 JV between financial services major Religare Enterprises and Mumbai-based Milestone Capital Advisors. This brought under its fold a rupee-denominated fund focused on healthcare and education sectors. In an interview with VCCircle, Amit Varma talks about the challenges Quadria faced while hitting fundraising milestone, LPs which backed the fund, countries the fund will focus on and more. Edited excerpts:

Looking at the macro situation in the country and abroad, it is an extremely cynical environment for PE players to raise money. What challenges did you face during your fundraise?

There were three main challenges. Asian private equity has been very focused on sector agnostic funds and to be able to walk into the market and start selling a specific fund, you need some kind of market maturity. It was a challenge to get people comfortable with the idea of a sector-specific fund.

Second is the perception that exits in Asia is challenging though everybody believes that there is no dearth of investment opportunities. Our logic has always been that this is a regional conglomeration story and over the next couple of years global players will come to Asia.

The third has been horrible macro news for India and other ASEAN countries where local currency is hit; the fact that output is not looking great for the next couple of months has actually made at least US-based investors very nervous about Asia.

How did you overcome these challenges?

Our fund has been targeted and specific; we have identified people who understand healthcare and are willing to understand investing in healthcare. They understand that these short-term stories do not impact long-term thesis.

How long did it take you for the first close? Which LPs have been roped in? What is the pipeline for the remaining corpus?

We started in July 1 last year; it has been over 12 months. We have raised money from a bunch of core investors which include development institutions such as IFC and DEG, large asset managers like Religare Global Asset Management (RGAM) and IMC based out of Singapore. Our other investors include Goldis, a company based out of Malaysia which is into building hospitals and US-based Medtronic which is one of the largest healthcare corporations in the world.

The first close has been of $107 million and we are planning to do the final close of $300 million in 12 to 15 months.

You are targeting the healthcare sector in South and Southeast Asia. How will it be divided in terms of regions?

About 40 per cent of the money will go to South Asia which includes India, Bangladesh and Sri Lanka. The remaining 60 per cent would go into SE Asia which will include Indonesia, Thailand, Vietnam, Philippines and Malaysia.

Which countries will you focus on?

We are not allowed to go beyond 30 per cent in one country. But India and Indonesia will take the bulk of it and will suck up around two deals each. We expect about 20-30 per cent investment to go into India.

Which LPs will you be targeting for the final close of $300 million?

Our next target of LPs will be fund of funds and family offices. We are also in active dialogue with two sovereign funds but I cannot disclose their names.

Is Religare the biggest investor in the fund right now?

Religare is a corner-stone investor and helped us get off the ground but it is not the largest.

Which segment in healthcare appeals most to you as an investor? Which one will you focus on?

We focus on four quadrants which include healthcare delivery, life sciences, medical technology and entire retail which includes segments like eye, dentistry, retail and pharma.

What will be the sweet spot of investment for you?

We would be happy to do a $20-60 million investment. We are looking to do six-seven deals in total with this fund.

We believe we have kept the fund size manageable and relevant for us as less than $20 million is too small and above $60 million gets you in a different zone after which the valuation starts getting crazy because a lot of big-ticket players are looking at the sector to invest that kind of capital.

By when do you plan to deploy $300 million? What is the life of the fund?

There is another cycle of fundraise which is 12-15 months from now. We are looking at deploying $300 million in four years.

The life of our fund is eight plus one plus one (around 10 years). We would be investing in four years and exiting within the next six years.

You have positioned yourself as a fund which will invest in South and Southeast Asia. Do you feel had it been an India-focused fund, it would have been challenging for you to raise capital?

If we had positioned ourselves as an India fund, we could have gotten caught in the cross fire of the macro situation right now and the undue pessimism that exists.

But having said that, we believe healthcare and education are two sectors which will be very resilient to the economic climate. This is because these sectors are core of fundamental infrastructure and Asians in particular will continue to spend on healthcare and education.

There is no government of any of the countries that I mentioned that can provide public healthcare for its people; so there will be a huge dependence on the private sector. We can step in, nurture them (private firms) to become good quality companies and help them grow to become regional players.

So in a sense this could be a pilot to understand markets of this region and there could be a much larger fund raise in the future?

With the current environment and in the immediate future we are comfortable with fund size of $300-500 million.

(Edited by Joby Puthuparampil Johnson)