PE veterans start out on their own

Higher rewards, challenges drive former fund managers to launch own funds.

It might not be easy to replicate things that you have done successfully but this is exactly what several bigwigs in the private equity (PE) industry are trying to accomplish.

Former Citigroup Venture Capital managing director Ajay Relan as well as Renuka Ramnath, often dubbed as the mother of PE, are starting second innings at a time when fund-raising is not easy.

Similarly, Shujaat Khan left Chrys Capital and started Blue River Capital. Recently, Srini Vudyagiri left Lightspeed Venture Partners and is planning to raise his own fund.

Ramnath quit ICICI Venture after Chanda Kochhar was appointed the ICICI Bank CEO. Three months later, Renuka is on course to launch her maiden fund — Multiple Asset Managers. The fund-raising is under way. The plan is to raise $450-500 million from domestic and institutional investors.

“It was the next logical step. It is all about making the right call to extract value for investors. There are enough examples of large global firms which are self-owned. In a self-owned firm, there is nothing much attached to the ownership beyond being a housing entity. And global LPs (limited partners) want their money to be entrusted with proven fund managers,” said Ramnath.

Relan, who is launching CX Partners, refused to speak, saying fund-raising was under way.

Hetal Gandhi, who started Tano Capital with Carlton Pereira, said, “It was a natural progression for me after having worked with IL&FS for 17 years. I wanted to challenge myself and test what was my contribution to the success of my fund. Today, although fund-raising is difficult, LPs are preferring proven independent fund managers than institutional ones as the former are more motivated. The reward is substantially higher than working for an institution-backed fund.”

“For me, it was a very personality-driven entrepreneurial decision. It’s where I want to see myself as an investment professional in the long term,” said Vudyagiri, who did not disclose the details of his fund.

Experts as well as the new general partners (GPs) say launching own fund is a far bigger challenge than managing funds with global presence and well-known investor base.

PE consultants said that it was all about freedom and personal aspiration. “It is a natural progression for most top executives who nurture companies while making returns on them. There is a personal glory attached in identifying good companies and being associated with them,” said PricewaterhouseCoopers Executive Director Sanjeev Krishan.

“Sometimes, there are areas of conflict of interest in an organisation. After reaching a certain level, it happens that there is a difference between the investment style of a fund and what the partner intends to do. Also, the financial rewards are much higher if it’s your own fund. The carry gets shared generally in a 60:40 proportion between the sponsor and the partner in a typical institutional PE fund. However, if you are the founder, it’s you who decide how to share the carry,” said, Harshvardhan, partner, Boston Consulting Group.