Saturday, April 19, 2008

All floaters. No Directors in PE funds.

Private Equity players have been swimming naked. The tide went out and all of them are left clutching their balls. Will the reign of mediocrity in India's PE funds end with this? Or will they still fancy dim witted B-school graduates that acted worse than average Dalal Street operator?

DNA Money analysis shows that, of the 51 PIPE deals in India in 2007, 33 have lost money. That's more than 60 per cent of the transactions. It means two-thirds of PIPE deals are out of money. Check out the big names.

Baring India's stake in JRG Securities is the worst hit, its worth having eroded 71 per cent. Others that have lost more than 50 per cent due to the recent market meltdown are Nalanda Capital in Vaibhav Gems, Al Anwar Holdings in Almondz Global Securities, Fidelity in BAG Films and Media, Orient Global in India Infoline, ADM Capital in Rama Pulp & Papers and Macquarie and Credit Suisse in Sical Logistics.

Deals consummated in 2006 also tell a similar story. Almost 40 per cent of them, or 17 of the 41 PIPEs, have lost money.

Capital International's stake in McLeod Russel India, Carlyle's in Allsec Technologies, Future Capital's and Reliance Capital's in Maxwell Industries, Goldman Sachs Investments' and Voyager Fund's in Spentex Industries, New Vernon's in JB Chemicals and Unichem Laboratories, Clearwater's in Kopran, ICICI Venture's in Geometric Software and Gateway Distriparks and General Atlantic's in Hexaware Technologies, are some of the investments whose values have eroded over 50 per cent from the time the funds invested in them.

It’s time for Indian PE managers to get back to basics. They should shun fancy "Director" designations. They have so far directed nothing. They were all drifters with market sentiment. Should call themselves exactly that or "floaters" as aptly defines their passive roles. Time to unlearn B-School gibberish and start focusing on "uncool" stuff like production, distribution and profitability.

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