Krishna Kumar, Senior Managing Partner, IL&FS Investment Managers Ltd. elaborates on the evaluation of the company and its investment strategy

You have been involved in the PE industry since late 1990s. How has the industry evolved?

We started the private equity business in IL&FS in mid-90s, when most people were not even aware of what private equity really meant. Fund managers faced a dual challenge of convincing both prospective limited partners and entrepreneurs that the private equity model could work in India

Between 2000 and 2005, however, the landscape dramatically changed as India began to take its place on the world stage. Economic liberalization policies were beginning to take effect – GDP growth was rising, inflation was dropping and new markets were opening. Private equity inflows started rising and touched a peak of US$ 18 bn p.a. However, the aftermath of the global financial crisis hit India in 2009 and investments were scaled down. Since 2014, growth has gained momentum due to a stable Government at the Centre, falling global commodity prices, which has contributed to a significant inflation moderation, as also positive policy announcements, which have strengthened business confidence and also led to record inflows of US$ 21 bn in CY2015

Over time, the PE ecosystem has evolved and matured and now supports a wide spectrum of investments – from early stage venture capital investments, to late stage growth investments to buyouts. Private equity has also touched all most all sectors – be it technology or social impact, infrastructure, manufacturing, or real estate; and more often than not, PE has been the first to catalyse third party and offshore investments into these sectors     

Please talk about the evolution of IIML as one of the largest Indian Fund Managers GP in the Alternative Assets business?

Till the mid-90s, IIML had been managing a few generic and State / Sector specific funds. Given the nature of the PE industry, these funds were fairly limited in size. It was in 1996 that a large sized infrastructure focused PE Fund was established. This fund, a joint venture with AIG and having a corpus of US$ 91 mn, was the first in the industry to attract offshore institutional investors. The Fund backed on the growth and infrastructure opportunities and invested in marquee companies such as Hutchison Max (which has now evolved into Vodafone) and Indraprastha Gas. IIML’s first fund stood out in its vintage generating a gross return of 27.2% in US$ dollar terms and a 3.6x multiple

In early 2000s, IIML recognized the need for specialized seed capital funding for project development activities relating to large format infrastructure project and was a pioneer in establishing a dedicated infrastructure seed capital fund i.e. The India Project Development Fund. Based on the experience of these funds, IIML raised a mid-market general purpose private equity fund in 2004 with a corpus of US$ 153 mn and followed it up with a US$ 225 mn general purpose PE fund in 2007

Sensing the opportunity in the real estate sector, IIML raised two real estate funds in quick succession between 2006-2007. These funds were not only the first in the sector but, with a corpus of US$ 525 mn and US$ 895 mn respectively were also the largest.  Given IIML’s expertise in real estate, we acquired a listed real estate platform in 2010 and also  diversified into managed accounts
Infrastructure was spun-off as a distinct vertical in 2008. In this vertical, IIML raised a US$ 658 mn pan Asian infrastructure fund in joint venture with Standard Chartered Bank. Today, IIML is one of the largest domestic GPs with US$ 3.5 bn of assets under management

What has been IIML’s investment strategy?

IIML not only set up India’s first  private equity fund with participation from offshore investors and India’s first real estate fund but has been the first PE investor across sectors such as telecom, roads, city gas distribution, shipyards, retail and media, waste management, agri-warehousing etc. These investments have been made from 15 funds raised and managed by IIML. The fund team has always believed in identifying trends and capturing value by investing in promising companies by partnering with the management

IIML has, from the beginning, focussed on a hands on approach thereby creating value through actions such as being on the Board, influencing strategic direction and implementing operational improvements. This creates a congenial environment wherein the promoters and the Fund work towards a common goal. This strategy has resulted in IIML successfully generating liquidity across  118 of its 163 investments and delivering a gross IRR of over 19% p.a. across the ~80 full divestments

What is IIML focussing at present and how does it help further the needs of a growing India in?

IIML has set up a strong platform across three verticals – general purpose private equity, real estate and infrastructure. We continuously evaluate fund raising opportunities across these verticals in a manner that it aligns with investment requirements in India. For instance, we have recently attained First Close of our 4th generation general purpose private equity fund. This Fund focusses on supporting small to mid-sized entrepreneurs, especially in the high impact sectors like healthcare and education. The Fund is expected to have a specific allocation for budding entrepreneurs and supporting them in their initial growth stage – a concept which echoes well with the Start-up India campaign of the Government of India

Apart from this, we have started fund raise for an infrastructure fund which will not only invest into growth capital of existing infrastructure companies but will also help in capital recycling by buying out infrastructure assets. Both these strategies are key to reviving the investment cycle in this sector

IIML has also initiated the concept of Investment Banking Led Private Equity transactions wherein it would seek to leverage its investor base, which comprises of marquee institutional investors such as pension and sovereign wealth funds. IIML is well placed to market identified opportunities to such investors as also co-invest alongside in the transaction. Such an approach, of a local partner having a skin in the game, would instil confidence amongst these investors to invest into India     

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