Ashish Dhawan is not a private equity investor anymore. The co-founder of ChrysCapital, an Indian private equity firm with over $2.5 billion in assets under management, is currently busy with his non-profit initiative Central Square Foundation, which invests his private capital in improving education outcomes for low-income children in India. When VCCircle met him recently, we couldn’t help but talk for a few minutes about what he thinks about Indian private equity, fund raising environment and the investment climate. Excerpts.
What is the best model for private equity in India?
The best model is one where there is some degree of flexibility as opposed to saying this model is superior or that model is superior…In India, you have to be very open and flexible with your approach, whether it is public vs private or it is mid size vs slightly larger size or it’s buyout vs growth. Having flexibility in the model, covering a wide range of sectors is important because there is a time where certain type of investing or certain sectors become unattractive.
Secondly, having solid depth in each of the sectors you cover and also solid relationships are really important. I believe that even before a deal comes to you, you should know whether it is a good deal or bad deal. So, for instance, when you look at the IT sector, you should already know in advance who are the winners, and should be chasing them as opposed to waiting for the companies to come to you. Private equity funds tend to be reactive as opposed to being proactive. They should be saying ‘I am going to look at the whole universe of the IT companies and decide which horses I am going to bet on even if they are not raising money now’.
What is the problem with the industry?
I think we are stuck at a moment where people made a lot of investments at the peak and some of them were not good. So some firms will fall by the way side and some of them will come out of it. Nobody is going to deliver outstanding returns (from investments done) over the last four-five years, but the key would be if you could generate at least reasonable returns and give money back to investors.
The biggest frustration of LPs has been the lack of return of capital. Those who are able to monetise, even generate modest returns and be able to show that over time they have learnt from downturn, that they have adjusted their model and over a long term they would be able to do sensible things and have a coherent partnership where people enjoy working with each other—a real distinctive advantage—I think those firms will prosper. And such firms will do very well, because the pool of money is shrinking, fewer people are excited about India today relative to earlier and while it makes it very hard to raise money, the positive is you are starting at a time where there is less competition.
Where have you been happier—at ChrysCapital or Central Square Foundation?
My happiest moment ever was when I started ChrysCapital. I was very young—30 years old. We used to work till mid-night every night. It was trial by fire. At this point, definitely Central Square because it’s like my baby. But the old days at ChrysCapital were special.
What has been your best exit till now?
It would be Shriram Transport.
What is your message to LPs?
LPs should take a long-term view on India. It’s a good time to win over the portfolio to say if I had 5-6 people whom I gave money to, and really use this opportunity to bring it down to 2 or 3 and not run away from market. Those people who have this episodic approach to India—those who come in and get out—are the ones who lose. I looked at LPs who came in the 90s, those were same LPs who stayed away between 2003 and 2007 and missed the best opportunity to make money in Asia because they came in too early and they had gotten too burnt and they weren’t going to commit.
Asia is going to do well over the next 30 years and having your toe in the water at all times is really important. Getting so negative on India that ‘hey, it is not going to get me money’ is the wrong conclusion to come to and becoming extremely bullish or so overweight on India is also the wrong conclusion. LPs need to have a 10-20-year view and need to use this opportunity to pick the highest quality managers, stay with them and be patient. Don’t blame it just on the fund manager, when there is a downcycle, it does take 7-8 years to monetise as against three to four years in an upcycle. I think it still is a good market.
(Edited by Joby Puthuparampil Johnson)