The macroeconomics aspect of our business has become all the more important, says Abhay Havaldar, MD, General Atlantic (GA), and that is perhaps what has guided the global private equity major—with $1 billion in commitments to India–to chart a different investment path. The firm, which earlier invested in IT/ITES and outsourcing, is now ready to back infrastructure and domestic consumption stories. After a three-year deal hiatus, GA made a comeback recently as one of the investors in Asian Genco, the largest private equity deal in recent times. In an interview to VCCircle, Abhay Havaldar, who leads the firm’s South East Asia operations, talks about the strategy shift, deal hiatus and GA’s IT portfolio. Excerpts:-
What is your assessment of the current environment?
If the markets are driven by fundamentals, then you are stable for a longer period of time. When markets are driven by liquidity, it leads to increase in volatility. The way the world was coming out was by enhancing liquidity and that is why we believe that the volatility is increasing. A lot of uninvested cash is trying to get into assets, hence the value of assets are not in line with what we are used to. While we are in the microeconomics business of making our companies grow, the macroeconomics aspect of our business has become all the more important.
General Atlantic made a comeback after three years with the latest Asian Genco investment. What kept you on the sidelines for so long?
In hindsight, we wish we could have made more investments in the second half of 2008 and early 2009. We are generally conservative investors and, during that period, there was enough uncertainty about the global economy and much of our businesses in the portfolio were dependant more on the global demand than domestic demand. So, we decided to conserve our resources to help our companies rather than going out and creating new sets of opportunities. We made sure that our companies were ready for a newer tomorrow. The cautious global environment, charting new themes within India and high value of assets were factors that delayed our investing in India until now.
What led to a strategic shift in GA’s investment strategy in India?
Earlier we were into businesses that had exports as their orientation, serving global demand with an Indian cost structure such as IT, BPO, pharma and outsourcing plays. These businesses did very well when the exchange rates were unidirectional. Now, they have shown a reversal of the long-term trend and have been more volatile. It took us some more time to figure out this whole domestic consumption and infrastructure piece because that is not an area where we had made significant investments in other parts of the world. Whenever you invest in a new area/theme, there is a certain amount of time that goes into understanding it to the degree of detail needed to make an investment.
What is the investment strategy or sector focus ahead now?
We are not constrained by sectors and continue to expand our vision. Currently the focus is more on infrastructure, both hard and soft. We will not get into real estate. Now we see a larger set of opportunities and we have a team out here (GA roped in Ranjit Pandit, former McKinsey India chief) which is now equipped to deal with a wider set of opportunities along with the fact that we have done work here before. We now have our views on what works and what doesn’t work in India.
Does it mean you will look to exit the IT portfolio in India. You recently sold some stake in Genpact too?
We look at each company separately and don’t make decisions based on a portfolio approach. Each of our companies is being run efficiently at this point of time and they are investing behind innovation.
It is believed that BPO industry is ripe for consolidation. What role do you think Genpact will play there?
BPO is not a homogeneous sector at this point of time. This was not a sector till 2000 and, in 10 years, private equity has played a much larger role in here. There is a fair amount of innovation happening in businesses – both IT & BPO. There are a lot of service lines being developed, and non-linearity between labour and revenue model is being adopted. What we are looking at is whether the management team can scale all this up.
What is the roadmap for Patni Computers?
Patni now has a strong management team and a board that is fully in charge. They have done a fairly good job in getting their efficiencies right in terms of margins and utilization. They are now being more competitive in the market place and are being invited to more deals, which helps business growth. In doing that, they are trying to get ahead of others in areas in which they think they can get competitive differentiation in areas such as cloud computing. Efficiency has certainly come into the business.