Wednesday, June 25, 2008

ICICI Venture is clueless (just as every other PE fund is)

ICICI Venture is planning to list its $1.5 billion real estate fund on the London Stock Exchange (LSE) – News.

PE funds are running helter-skelter. Having espoused a business model in which they raise large funds out of bulge bracket investors to invest in profitable avenues that [are supposed to] yield returns far in excess of market rates, the current uncertainty prevailing in global markets are driving this tribe mad. Nobody knows when oil prices will decline or the threat of inflation recede. Still they have to be in business to recoup their earlier reckless investments that are quoting at 60% below their cost of acquisition; so what do they do?

They come up with ideas like this one – go list your fund. PE funds list their funds usually when they feel unsure of returns in the foreseeable future. But they won’t admit as much. They will tell you “we want to expand our investor base to include non-institutional investors (hedge funds, HNI) that would like to cash out early”. But that’s pure crap. Remember Blackstone listing? Its stock price never got back to its initial listing price of $31. The only investor that got rich was its founder Steven Schwarzman (of the $400 crab fame) who cashed out. If it's a close-ended fund, investors have to wait till its maturity. However, if the listing option is built into the document, then the PE fund can exercise it at any future date.
In other words, it means [to their investors] “Look guys, we’re clueless whether or when we will make money from our investments at all. But still we want to be in business so that we can earn our management fee [if not carried bonus]. So we will come to you for funds and continue our jig. For the pesky amongst you, we will list these funds so that there is always a two way quote available to you scumbags. Don’t pester us for returns. Just invest and forget, bokay?”

Do you read it differently? Tell me, if so.

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