Bobby Pauly, a partner at Tata Capital, speaks to Private Equity International, on what the increased interest from India’s institutional investor community means for the firm.
Tata Capital, the private equity arm of India’s Tata Group, specialises in control and buyout opportunities in India and manages approximately $1 billion of assets.
PEI: How has the LP community in India changed its investment strategy in recent years?
Bobby Pauly: The quantum of capital we see with Indian LPs is relatively smaller than quantum of capital in other parts of the developed world. But as an asset class I think the Indian LP community – banks, insurance companies and family offices– are beginning to embrace the concept of private equity far more now than before.
In that context, as interest rates in India keep coming down, we expect to see more long-term players like insurance companies try to match their asset liabilities over time and become important investors in the alternatives space. Large pensions funds in India are still constrained by regulations. On the other hand, we are also seeing increased participation from high net worth investors, although it will take a while before the number becomes meaningful. In general, this shift in the investor community towards risk capital is a journey that has already started in the public markets, we will see more of them getting more active in the private markets soon.
PEI: You are seeking $600 million for your latest vehicle Tata Opportunities Fund II. How is this fundraising process different from the previous capital raise?
BP: In general, there is increased interest from LPs in the Indian market and the prospects seem promising. Our first fund had a concentration of Asian and North American LPs. Now we are seeing wide-based interest across more geographies, from sovereign wealth funds and pension funds to financial institutions.
Fund II will have the same strategy as our first fund, targeting growth and buyout deals in India where we have an edge leveraging our team and Tata. While the opportunity to raise capital for India-focused funds is high, we are focused on deal sizes between $30 million and $100 million. Our eight deals in Fund I have been in that range.
PEI: Are you expecting to see more co-investments for Fund II?
BP: Yes. We do co-investments more opportunistically and have not yet thought of creating a side car for co-investments; that would depend on the merits of the deal. Where we see the transaction value and which kinds of investors best meet the value creation potential of a deal – these factors drive our co-investment strategy. Our focus is on investors who can co-underwrite, i.e. do diligence deals alongside us. This also gives us a proof of concept in terms of the investor universe being ready with such transactions.
We think that with our investors it’s always useful for them to get their fair share of co-investment opportunities – that strengthens the relationship, improves their returns, and adds more muscle for us to do deals.
PEI: You closed your debut fund in 2013 on $595 million. How is it faring performance wise?
BP: Overall, our portfolio is tracking over 23 percent EBITDA growth and we expect to grow more than 25 percent this financial year. We continue to see healthy marks in our portfolio via a combination of good entry pricing, fast growth, scale and market leadership of our portfolio companies. With public markets in India growing almost 30 percent year-on-year in 2017, it is a good period for value recognition and realisation and we are actively working in this direction.