Samena Capital is a six-year-old alternative investment group, which recently acquired a seven per cent stake in Mahindra Two Wheelers (MTWL). The group currently manages total capital commitments of $700 million across three primary investment strategies: private equity, credit and hedge fund seeding. In November 2013, it launched the Samena India Credit Fund of $50 million. Ramesh Venkataraman, senior partner and head of direct investments and Akash Mehta, senior partner and portfolio manager of the Samena India Credit Fund, speaks to Shivani Shinde Nadhe about the fund's unique character and the huge opportunity in the India corporate bond market. Excerpts:
How has been the response to Samena India Credit Fund?
Akash Mehta: We launched the fund in November of 2013 and have invested 50 per cent of it. We are targeting yields that are secured and in mid-teens. The corporate bond market in India is a $200-billion opportunity and we see that growing at double digits in the years to come. In most countries, bond markets outstrip the lending markets; in India, it's the reverse.
Today, bond markets in India are offering equity like returns. Banks are tight because of extremely high credit to deposit ratio. There is natural monetary tightening. We think India has a structural inflation issue; it's a supply-side issue. There will be opportunity of sophisticated financial solutions, which the companies will need, and this need has to be met outside of the banking system. We want to be able to tap this.
Our portfolio construction is different and we have taken a cautious view up until the election time. So approximately just under 80 per cent is in dollar and the remainder in rupee. Our view is to run this with a dollar bias, and as and when we get a clear picture, we will change. In the long term, our fund will be rupee fund, dollar will be on the fringes. We think the best way to participate in India is through credit, because you get equity like returns in a secured way.
Do you see the fund size increasing in the coming years?
Mehta: We have a target to make this a $200-million fund in the next two-to-three years. Over the next five years, we want to be a large fund. The issue in India is you do not have a liquid secondary market of NCDs (non-convertible debentures), especially after AAA rating. We feel the market has to develop, for us to be effective.
What is so special about Samena Capital?
Ramesh Venkataraman: Our PE (private equity) approach is more flexible and tailored to situations in Asia. What's unique about Samena is our structure. Our investors are predominantly business people and entrepreneurs from the region. We do not have traditional pension funds and hedge funds as investors. More than 70 per cent of our capital comes from business people. These are people who are successful in their own right and look at Samena as a way to access investment in other sectors in other markets. Samena is not structured in the traditional LP-GP (limited partnership-general partnership business model). The reason for that is, we felt what is missing in the traditional asset manager is that you have people who allocate capital and see it as a purely portfolio construction type exercise approach; they are somewhat distanced from the actual investing. It seems investing has lost the passion and the process of building businesses. Business people have that passion as they are building their own business. It does not mean we will not welcome financial investors. If you want to scale and have large investment, you need them.
So far, Samena has two funds in the PE space...
Venkataraman: We are on to our second fund. We have fully invested the first fund. All the investments are in public market. It's a 2008 vintage fund and we have returned 40 per cent of our capital. We should be returning another 20 per cent of capital. We are exiting from one of our large investment in ME (Middle East). We have been very successful in this fund. Eicher Motors in India was a good exit. We delivered six times our investment. We have almost two years remaining before we return the capital.
This is the fund we used to close the Mahindra Two Wheelers deal. This fund is about 30 per cent invested and we have very interesting pipeline. It's more of private transactions.
You mentioned that Fund-II has a good pipeline of investments. Please elaborate.
Venkataraman: We are working on at least five very interesting transactions across the Samena region. These include, emerging markets retailer, temporary infrastructure provider (power, water, cooling) in the Gulf and Africa, precision plastics manufacturing company in Asean/India/China, building material company in the Middle East - global leader, leading insurance company in one of the Samena markets, and secondary transaction in a leading offshore IT infrastructure services provider. Our focus is on companies, which operate across multiple countries where, as a single pan-regional fund, we are better positioned than country-specific funds or fund teams.
Several PE players have been disappointed with the Indian market because of low returns. What has been Samena's experience?
Venkataraman: All of our investments to date in India have been PIPEs (private investment in public equity) with the investment in MTWL being our first private deal. Therefore, while we have not been affected by the issues faced by Indian PE players, our PIPEs have been affected by the macro slowdown in the economy and currency depreciation. Interestingly, the problems of some of the earlier vintage PE investments are creating an attractive flow of secondary opportunities that we are looking at in India.
The size of the second fund was to be around $700 million. But the closing has been $340 million. Will you be looking to top up the second fund?
Venkataraman: $700 million was an early projection. We decided to close the fund at $340 million and focus on deploying our capital since we were beginning to see very good deal flow across Asia and the Middle East and felt we were better off spending our time investing our investors' capital instead of continuing fund raising. Moreover, we have adopted a strategy of raising capital on a deal-by-deal basis for large deals (from our co-investors and third parties) and we hope to top up our assets under management using that approach.
How important is India as a market for Samena?
Venkataraman: India has been part of our investment focus from the beginning. You may not have known much about us as most of our investments were in the public-listed company, though our approach was PE. In 2008/09/10, the best opportunity in Indian situation would be in public position because the market had fallen. Now we feel the best opportunity is in the private space.