Tata Group, one of India’s largest multinationals, offered the team behind its 2011-vintage Tata Opportunities Fund a reduced share of carried interest before scrapping plans for a successor vehicle, Private Equity International has learned.
Mumbai-based Tata Capital, the group’s investment arm, had been seeking $600 million for TOF II and was near to a first close with backing from several investors late last year, according to a source with knowledge of the matter. The firm had agreed to commit $75 million to the fund.
TOF managing partner Paddy Sinha intends to depart the firm and will consider spinning out after Tata decided against sponsoring the new fund, AVCJ reported last week.
Its executives were offered less than the 40 percent share of carried interest they had received in TOF I, the source said. Tata set the same terms for Tata Capital Growth Fund II, which held a first close on $110.2 million in 2018 and is expected to hold a final close below its $350 million target in H1 2020.
Tata declined to comment.
TOF I collected $595 million against a $750 million target in 2013 with commitments from Japan Bank for International Cooperation and Korea Investment Corporation, according to PEI data. The fund still holds at least three of its eight portfolio companies and is expected to be fully liquidated within its 10-year fund term, the source noted.
Notable deals include Varroc Engineering, which generated a 6x gross multiple of invested capital and a more than 50 percent gross internal rate of return through its 2018 initial public offering, and Uber Technologies, according to TOF’s website.
Some investors are wary of backing captive funds as the shared ownership and economics can be perceived as a conflict of interest. According to the Institutional Limited Partners Association, the opportunity to earn carried interest should be fairly distributed to ensure manager stability and incentivise teams to create lasting value, as reported by sister title Private Funds CFO.
Japan’s T Capital Partners, for example, underwent a management buyout from its parent company Tokio Marine in September to become more appealing to limited partners overseas.
“Lots of people, particularly overseas investors, told us our performance is quite nice but they can’t commit because we’re a captive fund,” president Koji Sasaki told PEI at the time.
“The relationship between the parent and ourselves has been good, but the final question was our capital structure. It was the only issue LPs had.”
– This article was updated on 27 February 2020 to reflect that Tata Capital Growth Fund II held a first close on $110.2 million in 2018 and is expected to hold a final close below target within H1 2020.