LP interview: India’s Catamaran

Catamaran, the investment vehicle of Infosys co-founder and “father of Indian IT” Narayana Murthy isn’t keen to brand itself as a family office. There are too many connotations with sluggish approval processes and unprofessionally top-down decision-making.

Instead, the firm, founded in 2010, emphasises established processes for investment, recruitment, performance measurement, finance, and reporting. These efforts are led by a team that is responsible for setting objectives, developing investment theses, and running all operations.

Due diligence for direct investments can be completed in as little as two months. Fund commitments – given a perceived narrow field of viable local managers – can be confirmed even faster.

“These investments are reviewed and governed by an investment committee, similar to independent investment firms,” said M.D. Ranganath, chairman of Catamaran (pictured). “The investment committee makes decisions based on well-defined investment criteria, and the team is incentivised based on the performance of the portfolio companies.”

Ranganath, like Deepak Padaki and A.G. Panduranga, who serve as president and head of operations, respectively, came to Catamaran via Infosys. His 18-year tenure at the technology giant – during which he rose to CFO – ended in 2018 when he joined Catamaran as president. He assumed the chairmanship in August of last year, making way for Padaki to accede as president.

Ranganath sees the Infosys heritage as another point of differentiation from the family office pack. Global competitiveness, global scaling ability, high-performance team building ability, and constant reinvention are ingrained in the DNA.

“Our differentiator is governance. In our past careers, we were able to scale a company from a few hundred people to 350,000 while at the same time deploying world-class governance processes that match that scale,” he said.

Venture centric

Catamaran has about USD 1bn in assets under management across private equity, real estate, fixed income, and real estate, among other strategies. Private equity and venture capital typically account for 25%-30% of the portfolio. About 40% of the investment team – currently 12-strong in total – is focused on PE and VC.

The highest profile PE activity includes joint ventures with Amazon and Aon. It agreed to an exit from the former, an e-commerce enabler called Prione Business Services, last year with Amazon set to buy Catamaran’s entire stake. The latter, Aon India Insurance Brokers, ended with Aon buying out Catamaran in 2021. Investments in this vein fall in a range of USD 50-USD 100m.

Much of the alternatives allocation has always been venture capital-oriented, however, with Catamaran proudly holding shares in local unicorns such as B2B platform Udaan and news aggregator Dailyhunt. Fund commitments, typically around USD 10m, are invariably in the VC space, especially at the higher-risk end of the spectrum.

“Early-stage venture is very competitive. One has to source thousands of proposals, shortlist hundreds of them, and maybe only invest in one. That requires enormous bandwidth for a set-up like ours. That’s why we primarily rely on external funds,” Ranganath said.

Still, Catamaran sees a dearth of investible managers in India; it typically only has three or four GP relationships at a time. The credibility checklist focuses on concrete results in terms of distributions to paid-in (DPI), the extent to which other LPs have re-upped in subsequent vintages, how many vintages in the past 10 years have been top-quartile, and what operational skills are in-house.

“The tide was high a few years ago, and every fund we looked at said 30%, 40% IRR, but when you look deeper, DPI is nearly zero for most funds at five-year tenure,” Ranganath said.

“Of course, private equity is an illiquid asset class, but at the end of the fifth or sixth year, if somebody has not generated a DPI of even 0.7x, then the likelihood of that fund making realized returns going forward is very low.”

About 40% of the venture capital allocation is in funds, versus 60% for directs and co-investments. AVCJ confirmed two GP relationships: Blume Ventures and 3one4 Capital. For the latter, Catamaran participated in its fourth flagship early-stage fund, which closed on USD 200m last May after about 10 weeks in the market.

3one4 is also noteworthy for its Infosys connection; founders Pranav and Siddarth Pai are sons of T.V. Mohandas Pai, formerly a senior executive at Infosys. The VC firm is barely eight years old but claims more than INR 60bn (USD 750m) in assets under management and a portfolio with a combined market capitalisation of USD 7.5bn.

“We’ve had Catamaran’s partnership since Fund II, and they have been remarkable supporters of our growth in the Indian market,” Pranav Pai said.

“Given their acute knowledge of the public markets in India, we have benefitted from their views on the companies we are building. Specifically, their network of institutions such as mutual funds and asset managers have been quite helpful to the founders as they plan their paths towards the public markets.”

Manufacturing momentum

The preference for direct investment versus funds is set to persist as Catamaran branches into manufacturing, which it sees as an emerging area for private capital in India. India’s GDP from manufacturing is currently 15%. Catamaran sees that moving to around 25%, in line with Japan and Germany as India overtakes them to become the world’s third-largest economy.

Ranganath observes that whether they be homegrown or global, there are no mature funds making significant investments in Indian manufacturing. As such, he expects Catamaran to approach the sector via direct deals for the next five years or so.

Catamaran’s exposure to the sector is currently zero, but that is hoped to change in two sub-categories in particular: precision manufacturing and renewable energy hardware. Part of this will be driven by a shift in industrial capacity away from China. Part of it will be driven by domestic demand tied to rising affluence.

“India exported about USD 2bn in mobile phones about two years ago. That number is already touching about USD 8bn this year. Part of it is because India has become such a large mobile phone market, it requires localisation. But it’s also about government policy supporting a competence ecosystem,” Ranganath said.

“We saw that happen a few decades ago in two-wheelers when Japanese manufacturers developed the components ecosystem here. This time it will also be driven by geopolitics and government policy.”

In terms of the geopolitical piece, India’s advantages versus other manufacturing investment destinations – among them Vietnam and Mexico – include generally cheaper labour costs and a better overall technical skills profile. Policy challenges in areas like energy dependency will stimulate some domestic development activity, especially in renewables.

Ranganath expects much of this to happen in rural and semi-urban areas. He notes that trends in both digital services and manufacturing will support annual growth of 8% for India’s per capita US-dollar GDP.

At that rate, it will reach USD 4,000 by around 2030 nationwide. Already, at least 30% of the population already lives in states where per capita GDP is above USD 3,000. The inflection point for discretionary spending in developing economies is usually pegged at USD 3,500.

The growth narrative associated with these observations appears to be resonating with global investors, at least anecdotally. But as international capital targets the India story – including allocations that were previously overweight China – Catamaran hopes to leverage a reputation as a steadfast local.

“There will certainly be more competition, but founders and promoters of start-ups have a new term in their lexicon: reliability and dependability of the investor,” Ranganath said.

“There have been so many cases in the last few years of global investors writing big cheques, and when the company really needed the next round they say, ‘I don’t have allocation for India right now.’ Companies in India need that centre of gravity.”

• Tweet  
• Facebook  
• LinkedIn  
• Google plus  
• Save this article  
• Send to  

• Topics
• South Asia
• LPs
• Technology
• Industrials
• Venture
• India
• Catamaran
• Family office
• TMT
• manufacturing