Getty ImagesThe Carlyle Group, among the world’s largest investment firms, considers India a “strategically incredibly important market” where it wants to double down on its mainstay, private equity franchise. At the same time, it will also look to expand its offering to private credit, real estate and infrastructure, the buyout group’s newly appointed chief executive Kewsong Lee told Indulal PM & Arijit Barman in his first India interview. Lee took over as sole boss in July. Having deployed over $3 billion in India, a fourth of it in 2020, the quest remains to seek bankable partners and CEOs to expand the franchise. Edited excerpts:
How do you see the Indian environment and where do you see new opportunities?
India is strategically incredibly important. It is a huge opportunity for continued growth in investment opportunities. Carlyle, I think, is well positioned, and you’re not going to see us waver from that.
What are the key India risks?
There are very high valuations in India and clearly, you can talk about the bureaucratic environment from the outside, looking in. But we have been able to manage through that.
To me, the real challenge is to find the CEO and promoter to partner with — that’s the real scarce commodity. I am very encouraged to see the promoters and the management teams are getting increasingly sophisticated. They understand the different nuances between private equity firms. They appreciate the value addition that private equity firms like Carlyle bring to the table — it’s not just about money. I’d also say that the government has done fairly good job — the economy has taken a bit of a dip because of Covid but it has bounced back. We’re long term and we believe that India will continue to grow, I don’t know, maybe 8%, 9%, 10%, something like that, over an extended period of time. We are pleased with the bigger-picture progress in terms of reforms and how the government has handled some important issues. That sets up a pretty good backdrop.
Carlyle has been very active in India this year.
I think India is a great destination and a great source of investment opportunity. We think very strongly that that’s going to continue for a while. This is the outcome of persistent, long and dedicated work for many, many, many years in India. You are going to see continued and sustained activity levels for us, in this part of the world. India is about 30% of our investing activity in Asia and I don’t see that falling — if anything, I see that increasing over time. We have been focused on financial services and technology and healthcare and have a long, established track record. Built on that, we have a great senior advisor network. As you know, we have brought in Aditya Puri, Kamal Sharma and Rostow Ravanan as advisors.
In 2016, Carlyle’s director of research Jason Thomas ranked India as the most attractive investment destination in the world, offering the highest returns on incremental capital over four years. Has India lived up to expectations?
You are right — India is challenging. But, let me just say it this way, every market is challenging. Every business is challenging. Every investment is challenging. I mean, it’s a tough business we are in. It wasn’t easy 30 years ago and it’s not going to be easy 30 years from now. There are obviously unique aspects to India which people talk about. But let’s just talk about the facts. We have invested close to $3 billion and have realised $3.5 billion in proceeds across 38 transactions. We have been investing in India for over 20 years and to have a successful track record over two decades is pretty good. So, you’re not seeing Carlyle complain about India. Now, have there been bumps in the road, have some investments not gone quite as well? Of course, but when you look at the overall portfolio of everything we have done and look at our results, I am quite pleased.
Now, in terms of exits, I think Carlyle has demonstrated its ability to exit investments in India. The capital markets may not be as deep, but we have been very successful with SBI Card, SBI Life, Metropolis and PNB Housing. We have also done strategic exits in Visionary RCM. Some of our IPOs have been the largest in all of India’s history in capital markets. I mean, SBI Card is certainly right up there, if not one of the largest. If you partner with the right CEOs and the right companies and you build real value, the exits kind of take care of themselves. So, we are very pleased thus far. If you invest locally in talent and partners and appreciate the strengths and weaknesses of the franchise, chances are you will do the best deals which will then enable you to exit them in a more easy fashion five years out.
Unlike your peers KKR, Bain, Apollo, Blackstone and others, why has Carlyle stayed out of private debt or real estate in India?
It’s certainly on our radar. But my management mantra is one of focus and strength, And for us, that’s private equity. And so you're going to see us really expand and do more through our strength. Clearly, we are looking very hard at private credit opportunities, infrastructure opportunities, real estate opportunities. I think, for Carlyle, to stay focused, and to appreciate what are our strengths on the ground in India, and to double down on our strengths is the way to go.
Some have taken a call to only do large, buyout trades. Carlyle still takes minority stakes in companies.
The approach we’re taking is to have a platform-based strategy where one organisation, organised by industry sectors, that goes after both growth and larger buyout deals. The ability to be industry focused and pursue this platform approach, I think, is what gives Carlyle a ton of strength moving forward.
Are we going to see more appointments like Aditya Puri in India?
This just points to our continued commitment to and desire to expand and do more in India, right. And so, it’s not just Mr Puri, it’s Mr Sharma, and Mr Ravanan and others. And I think you’re going to just see us continue to support and build out our network.
If growth investing is seeing a momentum, will Carlyle revive its growth fund in India?
We cannot comment on fund-raising plans. But I like our formula at Carlyle where, with our industry expertise, using our platform, what we are trying to do is find growth companies that are not venture (capital), not so early stage but have established themselves with a proven business model and now need help from us to really accelerate and ramp their growth — either in the region or across (the world). Using that formula, we have been incredibly successful in China, in India. So this growth investing strategy our LPs are going to find very attractive because everybody right now is looking for alpha in a low-interest rate environment. There is only one other way to drive equity returns — it’s growth. So, that’s why LPs are very interested in finding different ways to take advantage of growth. And so, we are exploring opportunities to capitalise on the trends I talked about.
How is the investment environment changing because of Covid-19?
Overall economists and everyone is talking about continued low growth. We will see continued disruption from technology — if anything, technology has even further disrupted industries. What Covid has done is actually, it has accelerated a lot of these disruptive trends. This virus does not care what happens with Brexit, what Modi is doing in India. This virus is only going to keep going until you can manage to contain it and get rid of it. How we approach investing hasn’t changed because of the crisis. But the mix of where we have been investing — we’ve responded to adapt and adjust to the environment. People are adapting, moving forward. Companies are evolving. I suspect you’re going to see continued recovery in fits and starts around the world.
Will Asia, especially China, bounce back faster than Europe? Where does India stand in your view?
China this year will probably grow 3%. I mean, think about it, they’re not going to even go into a recession this year! Whereas, in the US we’re seeing growth could be off by negative 3%; Europe certainly more than 5%, maybe 6% down. So the outcomes already are very disparate, and if you think about it, China has been able to do this without spending comparably anywhere near the fiscal stimulus that was required in other parts of the world. We are also seeing the continued growth of digital in China even during Covid, their domestic travel, auto sales picking up. The rising consumerism that’s just going to continue unabated for decades in this part of the world, and that’s all going to set ourselves up very nicely on the tailwind of this continued growth.
How are you adapting to the changes and disruption to your style of investing? What are the major lessons learnt in 2020?
Our industry sector expertise with our global platform is our advantage. When you marry that with long-term orientation to partner with great CEOs to build companies, you get our approach to investing. That hasn’t changed because of the crisis. In fact, any firm that changes its stripes because of the crisis — I think you have to watch out. In terms of deals, the larger-scale buy-outs and carve-outs have gone down and have been replaced by the more growth type of investing. Second, I would say regionally, it’s no surprise that China and India are the two places where we have probably been the most active with a billion and a half of invested dollars in both regions. But also, Japan and Korea one needs to throw into the mix too. And then, in terms of industry, healthcare and technology, for sure have been at the forefront.
Any changes in your sector focus?
We have already discussed the sectors I like — be it tech, healthcare, financial services or consumer. But the underlying trends I would say are a very young demographic, a growing consumerism and consumption that I think would be powering a lot of growth. Finally, I’d say a certain spirit of innovation which runs throughout, which is very good.
Finally, in a post-Trump world, how does Carlyle see the geopolitics impact investment decisions?
Clearly, there is an increase in geopolitical tension. I don’t think that’s going to go down. You are talking about economic competition at a national-ecosystem type of level. My view on that is — competition is a good thing. I mean competition among companies, competition within industries, nations competing is not a bad thing — competition makes us good.
How do you see the Indian environment and where do you see new opportunities?
India is strategically incredibly important. It is a huge opportunity for continued growth in investment opportunities. Carlyle, I think, is well positioned, and you’re not going to see us waver from that.
What are the key India risks?
There are very high valuations in India and clearly, you can talk about the bureaucratic environment from the outside, looking in. But we have been able to manage through that.
To me, the real challenge is to find the CEO and promoter to partner with — that’s the real scarce commodity. I am very encouraged to see the promoters and the management teams are getting increasingly sophisticated. They understand the different nuances between private equity firms. They appreciate the value addition that private equity firms like Carlyle bring to the table — it’s not just about money. I’d also say that the government has done fairly good job — the economy has taken a bit of a dip because of Covid but it has bounced back. We’re long term and we believe that India will continue to grow, I don’t know, maybe 8%, 9%, 10%, something like that, over an extended period of time. We are pleased with the bigger-picture progress in terms of reforms and how the government has handled some important issues. That sets up a pretty good backdrop.
Carlyle has been very active in India this year.
I think India is a great destination and a great source of investment opportunity. We think very strongly that that’s going to continue for a while. This is the outcome of persistent, long and dedicated work for many, many, many years in India. You are going to see continued and sustained activity levels for us, in this part of the world. India is about 30% of our investing activity in Asia and I don’t see that falling — if anything, I see that increasing over time. We have been focused on financial services and technology and healthcare and have a long, established track record. Built on that, we have a great senior advisor network. As you know, we have brought in Aditya Puri, Kamal Sharma and Rostow Ravanan as advisors.
In 2016, Carlyle’s director of research Jason Thomas ranked India as the most attractive investment destination in the world, offering the highest returns on incremental capital over four years. Has India lived up to expectations?
You are right — India is challenging. But, let me just say it this way, every market is challenging. Every business is challenging. Every investment is challenging. I mean, it’s a tough business we are in. It wasn’t easy 30 years ago and it’s not going to be easy 30 years from now. There are obviously unique aspects to India which people talk about. But let’s just talk about the facts. We have invested close to $3 billion and have realised $3.5 billion in proceeds across 38 transactions. We have been investing in India for over 20 years and to have a successful track record over two decades is pretty good. So, you’re not seeing Carlyle complain about India. Now, have there been bumps in the road, have some investments not gone quite as well? Of course, but when you look at the overall portfolio of everything we have done and look at our results, I am quite pleased.
Now, in terms of exits, I think Carlyle has demonstrated its ability to exit investments in India. The capital markets may not be as deep, but we have been very successful with SBI Card, SBI Life, Metropolis and PNB Housing. We have also done strategic exits in Visionary RCM. Some of our IPOs have been the largest in all of India’s history in capital markets. I mean, SBI Card is certainly right up there, if not one of the largest. If you partner with the right CEOs and the right companies and you build real value, the exits kind of take care of themselves. So, we are very pleased thus far. If you invest locally in talent and partners and appreciate the strengths and weaknesses of the franchise, chances are you will do the best deals which will then enable you to exit them in a more easy fashion five years out.
Unlike your peers KKR, Bain, Apollo, Blackstone and others, why has Carlyle stayed out of private debt or real estate in India?
It’s certainly on our radar. But my management mantra is one of focus and strength, And for us, that’s private equity. And so you're going to see us really expand and do more through our strength. Clearly, we are looking very hard at private credit opportunities, infrastructure opportunities, real estate opportunities. I think, for Carlyle, to stay focused, and to appreciate what are our strengths on the ground in India, and to double down on our strengths is the way to go.
Some have taken a call to only do large, buyout trades. Carlyle still takes minority stakes in companies.
The approach we’re taking is to have a platform-based strategy where one organisation, organised by industry sectors, that goes after both growth and larger buyout deals. The ability to be industry focused and pursue this platform approach, I think, is what gives Carlyle a ton of strength moving forward.
Are we going to see more appointments like Aditya Puri in India?
This just points to our continued commitment to and desire to expand and do more in India, right. And so, it’s not just Mr Puri, it’s Mr Sharma, and Mr Ravanan and others. And I think you’re going to just see us continue to support and build out our network.
If growth investing is seeing a momentum, will Carlyle revive its growth fund in India?
We cannot comment on fund-raising plans. But I like our formula at Carlyle where, with our industry expertise, using our platform, what we are trying to do is find growth companies that are not venture (capital), not so early stage but have established themselves with a proven business model and now need help from us to really accelerate and ramp their growth — either in the region or across (the world). Using that formula, we have been incredibly successful in China, in India. So this growth investing strategy our LPs are going to find very attractive because everybody right now is looking for alpha in a low-interest rate environment. There is only one other way to drive equity returns — it’s growth. So, that’s why LPs are very interested in finding different ways to take advantage of growth. And so, we are exploring opportunities to capitalise on the trends I talked about.
How is the investment environment changing because of Covid-19?
Overall economists and everyone is talking about continued low growth. We will see continued disruption from technology — if anything, technology has even further disrupted industries. What Covid has done is actually, it has accelerated a lot of these disruptive trends. This virus does not care what happens with Brexit, what Modi is doing in India. This virus is only going to keep going until you can manage to contain it and get rid of it. How we approach investing hasn’t changed because of the crisis. But the mix of where we have been investing — we’ve responded to adapt and adjust to the environment. People are adapting, moving forward. Companies are evolving. I suspect you’re going to see continued recovery in fits and starts around the world.
Will Asia, especially China, bounce back faster than Europe? Where does India stand in your view?
China this year will probably grow 3%. I mean, think about it, they’re not going to even go into a recession this year! Whereas, in the US we’re seeing growth could be off by negative 3%; Europe certainly more than 5%, maybe 6% down. So the outcomes already are very disparate, and if you think about it, China has been able to do this without spending comparably anywhere near the fiscal stimulus that was required in other parts of the world. We are also seeing the continued growth of digital in China even during Covid, their domestic travel, auto sales picking up. The rising consumerism that’s just going to continue unabated for decades in this part of the world, and that’s all going to set ourselves up very nicely on the tailwind of this continued growth.
How are you adapting to the changes and disruption to your style of investing? What are the major lessons learnt in 2020?
Our industry sector expertise with our global platform is our advantage. When you marry that with long-term orientation to partner with great CEOs to build companies, you get our approach to investing. That hasn’t changed because of the crisis. In fact, any firm that changes its stripes because of the crisis — I think you have to watch out. In terms of deals, the larger-scale buy-outs and carve-outs have gone down and have been replaced by the more growth type of investing. Second, I would say regionally, it’s no surprise that China and India are the two places where we have probably been the most active with a billion and a half of invested dollars in both regions. But also, Japan and Korea one needs to throw into the mix too. And then, in terms of industry, healthcare and technology, for sure have been at the forefront.
Any changes in your sector focus?
We have already discussed the sectors I like — be it tech, healthcare, financial services or consumer. But the underlying trends I would say are a very young demographic, a growing consumerism and consumption that I think would be powering a lot of growth. Finally, I’d say a certain spirit of innovation which runs throughout, which is very good.
Finally, in a post-Trump world, how does Carlyle see the geopolitics impact investment decisions?
Clearly, there is an increase in geopolitical tension. I don’t think that’s going to go down. You are talking about economic competition at a national-ecosystem type of level. My view on that is — competition is a good thing. I mean competition among companies, competition within industries, nations competing is not a bad thing — competition makes us good.
( Originally published on Nov 26, 2020 )
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