Though the roots of private equity (PE) lie in post-World War II America, the industry has come into its own in India only in the last few years.
The PE industry here is growing steadily and global PE players such as Blackstone, Warburg Pincus, Temasek, and Sequoia are sharing space with Indian firms like ICICI Venture, Matrix Partners, Kotak, GW Capital and others. Most of these are lean companies.
For example, ICICI Venture, which is one of the largest private equity firms in India, with funds under management in excess of $2 billion, has between 80 and 90 people on its staff. Others are much smaller, with core teams consisting of as few as 3-4 employees.
And while the sector is bullish on growth and hiring prospects, there is one hitch that threatens to spoil the PE party. Private equity players in the country are concerned about the supply of trained manpower at operational (senior) levels.
PE companies are very picky about the kind of people they take on board, says Avnish Bajaj, MD and co-founder of Matrix Partners, “There is a certain amount of experience and exposure required, but a lot of these people that PEs are looking for don’t exist.”
Some, such as Crossover Advisors, are partnering with educational institutions to build awareness about private equity careers. “We took some students from IIT Bombay to intern with us last summer. The idea is to absorb the best of the lot, and then train them. Through internships, they get exposure to the business, which they would not get otherwise. We will extend this partnership with other IITs and IIMs,” says Vinnie Vyas, CEO of Crossover Advisors.
The attraction that the exciting world of private equity holds for seasoned professionals is clear. It has drawn people such as Rajeev Bakshi (ex-Cadbury and ex-Pepsi), Ranjit Pandit (former chairman of McKinsey India), Rajeev Gupta who headed DSPML’s investment banking business, Vivek Paul (former vice chairman of Wipro), Akshay Bhargava (former head of Progeon) and Akhil Gupta (earlier COO of Reliance), to name a few.
Some like Pulak Prasad and Amit Chandra have even leveraged their private equity experience to start their own PE firms in India. But these are individuals who have taken up the extremely challenging job of unlocking value in a wide spectrum of investee firms.
“The industry, on the one hand is lucky because everyone wants to join it. But on the other hand, not everyone who joins it can stick on. There have been cases of people who have joined and quit the PE business because they couldn’t handle it,” says Arun Natarajan, CEO of Venture Intelligence, a provider of information and networking services to Indian PEs and VCs.
The pinch is being felt at the top hierarchies of these PE firms. A limited pool of senior level talent sometimes tends to put a crimp on expansion plans. “The PE sector has expanded in the last three years, but it has been difficult to get the required competence. At the senior level, there is a clear shortage of people who have got the required domain expertise,” explains Manish Kanchan, CEO, Sage Capital Advisors.
This is also a dilemma that the venture capital industry, which is not very far removed from PE, is facing, says Rajeev Karwal, CEO of Milagrow. In PE, as in any other industry, it is newer entrants who have suffered from the lack of a deep, established talent pool.
India Value Fund (formerly GW Capital), a fund that invests in mid-sized companies, is one of the earliest domestic players, having entered in 2000. Today it has funds under management worth $600 million across three funds.
“Our strategy at the very beginning was to build a senior management team big enough to last us for five years,” says George Thomas, partner, India Value Fund. “The explosion of the PE sector in India really wasn’t anticipated; today you have some 150 funds. Everyone is demanding industry professionals from financial services, especially investment banking. So the early players have been relatively insulated.”
At middle and senior levels, Parag Paranjpe, director-HR, ICICI Venture, admits that the existing pool of skilled talent is currently insufficient. “So, leveraging the competencies and experience of our own employees, we have taken in people handling investment and business development roles within ICICI Bank,” he says.
Hiring relatively inexperienced people and training them for a new role is the only alternative. “Not all of the hires are quality professionals. And since this is a new field, we sometimes have to recruit people who do not have any experience of private equity or venture capital,” states Rahul Khanna, director, Clearstone Venture Advisors.
Attrition-wise, the PE industry isn’t too worried at the moment. According to Mayuresh Patwardhan, vice president, Edelweiss, the average attrition rate in the industry is around 15% in good PE and VC firms. “But then the attrition also depends on market conditions as well, which is quite dynamic at this point of time in India,” he says.
But experts say that the real reason for low attrition is that the industry is still nascent and at the partner level unlocks his/her personal ‘carried interest’, a part of the profits of the investee firm, only after 3-4 years. However, in the next couple of years, as the returns from corporate investments come pouring in, revealing the real high achievers, it is expected that there will be quite a few high-profile movements in the private equity business.
So are salaries in PE firms likely to see a significant rise in view of the shortage of experienced professionals? At the senior level, since the carried interest is the main incentive, rather than fixed compensation, so it is difficult to tell. But at lower levels, experts believe that the hike will be concurrent with salary expectations in the financial services space.
Source: Economic Times