Exclusive: Ajay Relan, the former Managing Director of Citigroup Venture Capital International (CVCI) in India, is believed to have roped in Morgan Creek Capital as an anchor investor in his soon-to-be floated private equity fund. The US-based investment firm is said to be investing $100 million in Relan’s fund, independent sources told VC Circle.
Sources also said Relan has roped in Amit Bhatiani, a senior New York based hedge fund manager as a partner in his fund. Relan, in an interview to VC Circle, confirmed the appointment of a senior partner, however, refused to name him nor the anchor investor in the fund. Bhatiani has been a Partner at Duma Capital, a New York based hedge fund, while prior to that he was a portfolio manager at Clinton Group.
Relan told VC Circle: “We are getting a partner from New York who has experience in investing in public markets. I have known him for the last 10 years. It’s important to have fresh blood in the company.” Relan recently quit CVCI after about 13 years of service to start his own fund. He is joined by another CVCI hand Jayanta Basu who will also be a partner. Relan said there will be three partners, one principal and two analysts.
Relan also said that he is looking at a fund size of $750 million to $1 billion, and the fund raising will be complete in four to six months. “There is a very strong interest from limited partners,” he said. He also informed that he has got commitments worth $100-200 million already.
Fifty four year old Relan is also looking forward to investing in companies personally along with the fund. He is believed to have netted about $30-40 million in carry from CVCI. The other new thing Relan will do is to launch a subsidiary company which will help the portfolio companies of the fund in managing the growth and adding operational excellence. More in the Q&A below. Excerpts:
What led you to floating a private equity fund of your own?
It’s primarily driven by entrepreneur’s spirit. I believe that one can create a sustainable private equity business. It’s also possibly inspired by the success one has in building a business, managing a team and building the team. I am joined by Jayanta Basu from CVCI as a partner. We will also have some fresh blood. PE business has some degree of interface with public markets either through PIPE deals or the portfolio companies that will be listed.
We are getting one partner from New York who has experience in handling markets. He will move from New York to India. He is a partner in a hedge fund management company. I have known him for past ten years. There will be three Partners.
What is the basic character of the fund?
We will be identifying great management team, in both private and public markets. We will be sector agnostic. We think these companies can grow at 40 per cent year on year and offer high returns or return on capital employed.
What will you do differently?
At Citi, I was primarily engaged in growth capital with strong minority protection rights and Board representation. Here, we will manage the private / public interface better and manage returns. We will identify companies with potential, add operating excellence and value to the companies. We will also form a separate company who will work with portfolio companies and add value to them - on the lines of Blackstone /KKR (Capstone) model. Their rewards are going to come from what they can do to the company. The companies in India are growing rapidly, they will ensure operating margins aligned with growth. We will use our experience to truly identify the sectors where we can get high ROC businesses.
When did you decide to go on your own?
It took six months to become entrepreneurial. People have always been asking me about it but the idea had to take roots. There is a heightened sense of responsibility which comes from experience and you feel confident about managing the money because the buck stops here. In this business, learning is very important. One has to go through various cycles.
What is the size of the fund that you are looking at?
We are looking at $750 million which can go up to $1 billion. We expect to raise it in another 4-6 months. We have started getting calls already, there is a very strong interest from LPs. We have got commitments of $100-200 million already. In India, reputation is what matters.
How many offices will you have? How is the economics structured for the fund?
We are going to have two offices – Delhi and Mumbai. We will do the standard structuring here also. I will also invest personally along with the fund in the companies (Relan has made a huge carry from Citi). We will have a team of three partners - one principal and two analysts.
The fund management business at Citi was run extremely well. There was a high level of empowerment. Citi runs its very entrepreneurially.
Are you launching the fund for economic reasons? You get a higher share of profits if it’s your own fund.
Overall the economics does not matter. Economics is only a secondary issue. For us, its primarily entrepreneurship. I would be probably better off at Citi if it’s about money. Economics is not a driver, it has never been a driver. Its about being able to look back and say we did some of the best deals. I don’t want to buy a private jet.
Do you have plans to list the fund any time?
Its too early, you must have a sustainable business, you have a responsibility to the shareholders.
As a first time fund, do you find it difficult raising a fund?
I am not really a first time fund raiser. I have been investing and also raising funds for Citi for the past 15 years. It is only that I am starting up now. I don’t think that matters.
What are the deals that you are proud of at Citi?
My real joy has been in creating a team of absolutely first grade professionals. Creating a team, building them together is a great thing. It’s not the deal. That can happen out of serendipity. So that even after I leave it, I am proud of what I have built. The key is to spend a lot of time with the management, and guide them. They are mostly family businesses, so you need to provide them with new management ideas and other support.
What is the key thing for investment success?
You need to back the right team in the right sector and at right time, then you are done. You can’t lose if you get these things right. Some of the sectors we have backed at Citi in the past include infrastructure (IVRCL), renewable energy (Suzlon Energy) and financial services (UTI Bank, Yes Bank and Centurion Bank).
