ChrysCap slashes India-centric fund

Call it a contrarian call on the India investment story. That too from a private equity fund which has always been bullish on India, managing $2.25 billion investments in over 45 companies.

Three years after raising the single largest India-dedicated fund--the $1.25-billion ChrysCapital Fund V--the asset management company has suddenly put the brakes. And in an unprecedented move, has voluntarily cut the fund size, by returning $300 million of capital to the fund's Limited Partners.

Ashish Dhawan, senior managing director and co-founder of ChrysCapital could not be reached for comments as he is travelling in the US, but Sanjiv Kaul, the fund's managing director and spokesperson confirmed the news to Business Standard.

"It's a proactive step. We have, over the last few months, gone back to our LPs and have told them that we will not be investing the entire $1.25 billion which we thought we would. We will not be drawing down that entire capital, even though we have the full commitment… The fund size has been brought down by $300 million and the remainder should get invested over the next two years."

From its fifth fund, ChrysCapital has already made investments worth $500 million in four listed companies via the public market route. Sources say these investments include Infosys, HCL Tech, Amtek Auto and Gammon India. While in Infosys, it is believed that the fund has put in $200 million to emerge as the single largest FII investor, in the remaining four, their investments range from $80 million -$110 million.

"Out of the remaining $450 million, we will still make 3-4 investments over the next one-and-a-half to two years," Kaul told Business Standard. Industry sources say after that ChrysCapital may be raising another billion dollar plus fund (Fund VI), keeping in mind the fact that they have raised a new fund after every two years in the past. Even when Fund V was being raised, it's believed that there was a commitment of  $4 billion from different sponsors.

But why have they suddenly made such a unique move? "Last year has been a very tough one for all. Keeping in mind the investment climate in India, our call has been that the number and quality of good investment stories will get limited, so it doesn't really make sense to carry on with a billion dollar fund," says Kaul. "We have been giving a 15 per cent plus IRR (internal rate of return) every year to our investors. In today's environment, achieving such targets will not be easy. So we took this call on our own, and in return we now have greater flexibility from our LPs."

ChrysCap, say sources, will now have the option to invest the entire remaining corpus in public market deals. Usually, PE funds resist from such an investment thesis, keeping in mind the risk and potential downside of mark-to-market losses. Typically, public market deals are the forte of hedge funds. "It's a quid pro quo," says the India head of  a big accounting and advisory firm who did not want to be quoted. "By returning capital, they have the flexibility. Now they can use the public market a lot more and exploit the volatility. In a private market space you can't buy on volatility."

ChrysCap off late had become quite conservative when it came to traditional PE investments, point out PE industry trackers. In fact, in a media interview in March this year, Ashish Dhawan went on record to say that a double dip recession in the West cannot be ruled out. He went on to add, in India the corporate expectations are way ahead of what companies will deliver. According to him, the general take is that markets are ahead of themselves even though the macroeconomic climate has been very benign. Dhawan felt, at that time, the public markets were probably 20-25 per cent overvalued.

Since March, the Indian markets have corrected 3.5-4 per cent.

ChrysCapital's contrarian views, however, come at a time when most big global PE players--from KKR, Bain Capital, New Silk Route, 3i to Apollo Management--are either setting up shop or are raising their India allocation.  A host of leading PE fund managers from Renuka Ramnath to Rajesh Khanna have also ventured out on their own. Domestic financial powerhouse Enam is also in the process of raising a $500 million India infrastructure fund which may even go up to a billion dollars. Corporate houses from the Birlas to the Tatas have also joined the PE bandwagon.

Ashish Dhawan too has been the poster boy of Indian PE since 1999. The fund, which started out as a venture capital fund in 1999 to cash in on the dot com boom, had evolved into a PE fund by 2004. From 2009 onwards, it has been more of an investment firm.

Dhawan is also one of the highest individual tax payers in the country. It's believed that he paid advance tax of Rs 55 crore in 2009-10, as compared with Rs 20.1 crore in the previous year.