Q&A: Gaja Capital's Gopal Jain

Q: What opportunities does the US present for Gaja Capital, and for Indian private equity in general?

A: Our principal source of capital is the US institutional market, and that’s going to be the case for some time to come. On top of that, we see the US as a market for some of our companies, and we see ourselves as a preferred supplier of businesses to US strategics and buyout firms. Last year India was the largest destination for foreign direct investment (FDI) in the world. It’s even larger than China, though China’s economy is four times the size of India’s. And it’s not just a flash in the pan – we’ve seen a trend over the last four years for India to attract more FDI.

Q: Why do you expect US corporate interest to continue to grow?

A: Corporations are always looking to the future, and if you’re looking to the next 20 years, India, along with China and the US, will add the most dollars in nominal terms to the global economy. If you are a US or global corporation, the two markets that you must look at as you plan your future growth are China and India. That’s why India is attractive to US corporations and buyout firms. This is helped by the fact that the perception of India as a difficult place to do business is changing, slowly but surely, thanks to government efforts to formalize and defragment the economy.

Q: What about the perception among institutional investors of Indian private equity?

A: Indian private equity is in the process of emerging as an independent asset class, as the public markets did a few years ago, because managers have shown they can take money out. Exits used to be $0.40 to the dollar when Gaja Capital started 14 years ago, and now it’s $0.80. China currently is at $1.20. We are roughly where China was around 2006 and 2007, when China emerged as an independent asset class. And China’s economy was roughly the same size at the time, $2.5-2.7 trillion.

Q: Has this made fundraising easier?

A: I’ve been in Indian private equity for 20 years, first at the View Group in Boston and then at Gaja. Our communication with US institutional investors has been largely outreach-driven because India hasn’t been seen as a mainstream asset class. Going forward I think some of our peers will have an easier job, because there is greater inbound interest. The type of investors has evolved as well. When we started Gaja 14 years ago, the interest we saw was largely from high net worth individuals and some family offices. But today the interest has shifted to the mainstream institutional investor categories – fund-of-funds, foundations, large family offices, endowments, and state and corporate pensions.

Q: Gaja recently exited John Distilleries to its US peer The Sazerac Company. What does this trade sale say about the development of US investors’ perspectives on India?

A: When we invested in John Distilleries, the Indian alcoholic beverages market had very little multinational presence. Our thesis was that in line with other large consumer sectors, the industry would eventually be dominated by global companies. We are seeing this thesis start to play out, with Diageo buying United Spirits and now Sazerac buying John Distilleries. The second attractive point was about John Distilleries itself. This company is not just a maker of products for the Indian market, but for the global market as well. 

Q: To what extent did the presence of an existing PE investor make the company more attractive?

A: It played a major role. I believe private equity-backed companies in India will be sought out by US corporations and buyout firms for several reasons. Foremost is that the presence of private equity provides assurance that the businesses will be run to a certain standard. There is greater cultural compatibility between businesses in India that are majority or even partially owned by private equity, and the needs of US buyout firms and strategic players. 

Q: What impact will the US-China relationship have on India?

A: India and the US have been gravitating toward each other gradually but steadily over the last 30 years, in economic and strategic terms. We believe this will continue over the next 20 years. Nothing has happened recently to fundamentally change that thinking. The question is: Will whatever is happening in the rest of the world accelerate that gravitation? It’s too early to say – we don’t make our bets based on developments in the last six months, or one year, or two years. Whatever we’re doing today is based on what we’ve seen over the last 20 years.

Q: How do you see the PE industry evolving?

A: I think Indian firms can position themselves to take advantage of these trends, and Gaja has consciously done so over the last 14 years. We’re seeing Indian growth equity become increasingly like US growth equity, so our investing style has evolved into a high-touch, control-oriented style. Today 100% of our portfolio companies are majority-owned by their investors; 10 years ago, all our portfolio companies were majority-owned by the entrepreneurs. We see this as a huge opportunity.  

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• Topics
• South Asia
• GPs
• Buyout
• Buyouts
• India
• Gaja Capital Partners