Axis spinout may set trend in India

If the plan goes through, it would be India’s first spinout of a bank-originated private equity firm, and may set a precedent for the local market, where may private equity funds are linked to larger institutions and conglomerates.

“The team is contemplating a spin-out and discussions are ongoing,” Gupta confirmed to AVCJ. “The contemplated spin out reflects both the strategic decision by Axis Bank to focus on its core banking business, and the desire of the senior team at Axis Private Equity to be part of an independent private equity firm.”

Axis Private Equity was originally launched by Axis Bank, India’s fourth largest bank by market capitalization, targeting growth capital investments in mid-market infrastructure propositions, with a track record to date of investing in water supply and sanitation, oil and gas distribution, railways, and hospitality. It launched its Axis Infrastructure Fund 1 (formerly UBL Infrastructure Fund) in March 2007, and had a first close in April 2008 at Rs 6 billion ($150 million), though its ultimate target was around $400 million. Axis Bank contributed Rs2 billion ($50 million) to this fund.

Some investors in the fund reportedly oppose the move, fearing loss of access to deals and capabilities if Axis Private Equity does spin out from its parent. However, Axis Bank, as the cornerstone investor in the vehicle, apparently remains in place and committed to the fund’s success.

“Axis Bank remains fully supportive of the fund, and the team and will continue as its largest limited partner,” confirmed Gupta.

Balanced against the risk of separation from a parent, though, for Axis Private Equity and similar platforms, is the risk to team stability and motivation if the firm does not develop a properly incentivized and aligned structure. Axis Private Equity itself evidently recognizes this. “This better aligns the interests of the investors and the fund manager, and enhances team stability,” Gupta told AVCJ.

As confirmed by Gupta, Axis Bank’s move apparently reflects a move to refocus on core banking strengths. However, the bank evidently has by no means abandoned the broader investment ecosystem, launching a new family office solutions service for Indian HNW families in association with Banque Privee Edmond De Rothschild (Europe) at about the same time the moves over Axis Private Equity became public.

With Ascent Capital Advisors also perhaps contemplating a spinout from UTI Venture Funds Management, not to mention political pressure in the US to split private equity, hedge fund and direct investment businesses off from most banks, Axis Private Equity’s actions could augur a new trend in India or beyond. Certainly, spinouts of private equity teams from banks and other institutions have long been commonplace in Western private equity. These are usually driven by the GPs’ wishes to fully align their interests with the structure by taking a full share of the revenue, as well as to pursue truly independent value-driven investing. Banks, or LPs, that try to resist these trends are liable to lose the GP teams and funds sooner or later – or see persistent underperformance.

Gupta himself should know: earlier in his career, he was partner and MD at the $355 million Asian Development Bank-invested Asia Equity Infrastructure Fund. He also has been a director at Hughes Telecom India and chairman and CEO of a steel plant in Europe. Gupta holds an MBA from the Wharton School at the University of Pennsylvania.

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• Topics
• South Asia
• Funds
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• Asian Development Bank