Buying into success

Indian financial services company Religare is looking to become a major player in the private equity industry and made its first move by taking a majority stake in fund of funds Northgate Capital.

The company purchased a majority stake in US- and UK-based Northgate in February for an undisclosed amount as part of its plan to invest up to $1 billion in asset management businesses globally. 

Religare will target other asset classes beside private equity, but is planning on partnering with another private equity firm, this time not a fund of funds. 

The company was attracted to the asset class by the potential for high returns and the recurring revenue stream through management fees, Matt Mongia, managing director with Religare, told PEI.

Mongia notes plenty of opportunity to invest in the asset class, especially as more banks look to divest their in-house shops. Fundraising also appears to be heating up, he says, especially for the best performers: “We see [fundraising] as a short-term challenge. In the long-term, private equity will continue to be in demand.”

Prior to the Northgate deal, Religare was in the running for the private equity business of AIG, according to Mongia. Richard Li’s Pacific Century Group eventually won the bidding. 

The partnership with Religare will allow Northgate to “be a significant and long-term industry leader, and raise larger funds”, Mongia says. Also, Northgate had no offices in any emerging economies. “We bring physical infrastructure in the Middle East, Asia, Latin America, South Africa,” Mongia says. “We have a lot of knowledge and experience in local market conditions.”

Religare intends to be “hands-off” on the daily business of running the firm, but will be more involved in bigger picture issues like corporate governance and ensuring Northgate uses the company’s expertise and network, Mongia says. “They have a seasoned investment team, with top-tier performance, we don’t want to interfere with that,” he says. 

Northgate, which has $3 billion under management, has been investing in the emerging markets for about five years, and expects to expand its presence in these geographies.

“Over the next 10 years we see a growing opportunity to invest across [the emerging markets],” says Hosein Khajeh-Hosseiny, head of global private equity investments with Northgate. “We are keen on complementing our coverage of the emerging markets with a much deeper and more widespread presence in these markets.”

The partnership was ideal for Northgate, says Khajeh-Hosseiny, because of Religare’s emerging markets origins, its industrial and asset management strengths and most importantly, its intention to be a “highly supportive but completely un-intrusive partner”. The company’s “strong investment performance ethic” was also attractive to Northgate, he adds. 

“A very small part of the benefit [of the partnership] is access to new pools of capital,” Khajeh-Hosseiny says, stressing Northgate has never had trouble raising money. “We have our own brand and our own following. Critical for us is ensuring we have the greatest level of distinctive insight into the markets we’re going to be investing in.”

Religare also plans to set up investor relations teams in various regions that will be able to help Northgate raise money for new funds. One of the first teams to be established by Religare will work in Japan with private and public pensions. 

Northgate could see an immediate benefit as the firm is currently raising its fifth fund of funds, which will have a target north of $1 billion. Northgate closed its fourth fund in 2008 on $600 million. At this point, Religare is not looking to extend its fundraising team to market external funds; the work will be strictly in-house.