CDC spinout seeks $500m for India secondaries fund

The firm is led by Alagappan Murugappan, who previously spent more than seven years with the UK-headquartered development finance institution (DFI), leading its India fund-of-funds program, and Piyush Jhawar, formerly a senior member of the same team. They also helped establish a $300 million India secondaries joint venture between CDC and Coller Capital.

They plan to leverage that knowledge and experience to build a diversified portfolio of 8-10 investments, primarily GP-led transactions that involve a restructuring of LP interests in funds, committing $40-60 million per transaction.

"We initially set up Stratford House as an advisory platform, providing services to LPs, and to some extent to GPs, that have assets in India. But the ultimate aim – and CDC encouraged us to do this as well – is to build a secondaries business focused on India, using our networks and experience having managed what is by far the largest LP portfolio in India," says Murugappan.

CDC's South Asia fund portfolio comprises 64 positions. Stratford House continues to advise CDC on certain legacy strategies that the DFI will not continue to invest in as well as on the Coller program, which is in the divestment phase.

Focused on traditional LP secondaries, the program was devised to generate liquidity for some earlier CDC investments and acquire other assets in the market. Murugappan notes that they "demonstrated it was possible to have a commercially viable secondaries program for India."

Stratford House has looked at 8-10 potential transactions since its establishment earlier this year. The firm expects the addressable market to grow significantly as more local GPs explore liquidity options for funds as a means of providing distributions to LPs ahead of a new fundraise or to secure more time and money to develop portfolios with unfulfilled potential.

Most GP-led transactions in India to date have involved VC assets: the KPCB and Sherpalo Ventures India joint venture was spun out as Lightbox; Lexington Partners supported Madison India Capital's acquisition of interests from Sequoia Capital India; HarbourVest Partners did the same for Norwest Venture Partners spinout Avataar Venture Partners; and J.P. Morgan and NewQuest Capital Partners led restructurings of India portfolios held by Canaan Partners and Draper Fish Jurvetson, respectively.

Some secondary deals haven't turned out as expected, with Jhawar suggesting that targeting diversified positions and relying on a certain size discount to net asset value to generate returns doesn't necessarily work in India.

"We have been aware of certain situations where people have transacted at 30-40% discounts, but still not really made money on those investments," he said. "It goes back to information asymmetry and the visibility one has over a wide range of portfolios and being able to price them appropriately."

Stratford House has assembled a team of five investment professionals – three of them from CDC, including the two founders – to navigate the complexities of the market. Murugappan highlights the ability to assess portfolios accurately as one of the key challenges of India, alongside limited exit windows for minority investments and intermittent currency volatility.

"You need to examine the exit prospects for investments, and the value at which they can be exited, and then double-check," he explained. "Valuing a portfolio, with the information available, is difficult. We do it bottom-up and we hope the information networks we have will allow us to do it properly."

Stratford House is one of several new Asia-focused secondaries players to emerge recently. Others include Foundation Private Equity, led by Jason Sambanju, formerly Asia co-head at Paul Capital, Ant Capital spinout Bee Alternatives, and Singapore-based Aquilius Investment Partners, which is targeting secondaries as part of broader mandates.

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• Topics
• South Asia
• Secondaries
• Fundraising
• India
• CDC Group
• Coller Capital
• Secondaries
• Stratford House Advisors