Anil Ahuja, one of Asia’s most prominent private equity players, has reemerged on the investment scene after his departure from private equity firm 3i in February last year.
Ahuja, who is based in Singapore, has now launched a $100 million hedge fund to invest in Indian listed equities, as the traditional private equity model doesn’t work in India, he told Private Equity International.
“India, and all of Asia, has imported a Western private equity model, and that [model] I’m not completely sure fits into how business is done in Asia.”
The fund, called IPEPlus Advisors, adopts a hybrid approach of investing, using the depth of analysis required in private equity investing, but deploying capital in listed equities and other assets.
“The worst thing about private equity is illiquidity. The real risks we’re running in emerging markets and Asia is that the risks we are evaluating are business risks. We spend loads of time trying to find out who are the competitors, if the management team is adequate, who does the business export to, etc. But the real risk is the [macroeconomic situation], and the impact that has had on [private equity funds] has been significant,” Ahuja explained.
In Asia, and India specifically, private equity firms have struggled to exit their portfolio companies due to slowing growth and weak capital markets. Moreover, with GPs mostly taking minority positions in the region, they often lack real control in terms of effecting change or securing an exit.
Ahuja believes his hedge fund can invest in “the highest quality and most liquid end of the available assets”. It is targeting a 10 to 14 percent IRR over a five to 10-year cycle.
“Capital preservation is key. Liquidity is an absolute requirement for every position,” according to a statement detailing the fund’s investment objectives.
Ahuja has anchored the fund with $10 million of his own personal capital and plans to raise a further $30 million from investors now, with a further $60 million expected by the end of 2014, he told PEI.
Investors will pay fees and carry of 1 percent and 10 percent respectively, hoping to secure a solid alignment of interest, Ahuja said.
He explained, “The whole discipline of investing from the private equity side is what I’m trying to bring to the [hedge] side. I’m trying to correct the compensation structure – or the fee and carry structure – [and] I’ve created liquidity. I’ve [also] given myself the flexibility to invest across products, which means bonds, equities and derivatives.”
Ahuja is focused on the compensation aspects of the fund, he says. While private equity funds in Asia have grown in size, so too have the management fees collected by GPs – an issue increasingly scrutinised by LPs worldwide.
“My objective is to make money on money, not on a fee stream. It has been an issue that has been simmering for a while and it will blow up sometime. The biggest problem is it takes you away from being focused on return to being focused on size. It changes the entire game.”
He added, “More importantly, it has another impact, which is that people will not sell the investments that are not doing well because the moment you sell those investments the fee stream stops. So there is this long tail of sub-optimal investments that continues to hang out in the private equity world.”