Spin out, spin onwards

Monday saw another crop of senior professionals leave Indian private equity giant ICICI Venture to set up on their own.

In doing so, Jayanta Banerjee, Anand Vyas and Sunay Mathure follow in the footsteps of former ICICI private equity head, Renuka Ramnath, who left the firm in April last year to establish her own firm, Multiples Alternate Asset Management, taking senior director Sudhir Variyar with her.

They also join a growing list of Indian private equity professionals who have done the same in the past year or so. Most notable amongst these are Ajay Relan, who left Citi Venture Capital International in 2008 to set up CX Partners;  Subbu Subramaniam, co-founder of Baring Private Equity Partners India, who left the firm in August 2009; and Ascent Capital, the team currently in the process of spinning out from UTI Ventures.

Pointing to this trend, Ramnath herself said at the recent PEI Forum: Asia in Hong Kong: “When LPs talked to me about spin-outs five years ago, I used to think it was a distant dream, if not an impossibility. Now it’s happening.”

So what does all this mean for Indian private equity? Viewed in the context of the high turnover of private equity professionals seen in the industry, spin-outs could be seen as another symptom of a broader malaise. But viewed in the context of the sector’s ongoing evolution, the existence of professionals whose name and personal track record are enough of a brand to allow them to raise money against them is proof of the asset class’ development towards greater maturity.

The newly independent GPs also open up another investment avenue for international investors looking at the market. Five years ago, when spin-outs were as Ramnath says “a distant dream”, LPs looking at India had to choose between the few global players present in the country and the larger number of captive firms such as ICICI Venture. For the many Western institutions that value GP independence as a key part of the investment thesis, the arrival of the spin out team represents a more attractive way in.

As an example, look at the $100 million commitment Ramnath collected from Canada Pension Plan Investment Board – the pension fund’s first commitment to India – ahead of the first close of her maiden fund at Multiples.

But what does it mean for the likes of ICICI Venture? Will investors be wary of committing to a firm which has now acted as incubator to several rounds of spin-outs?

Probably not. When ICICI Venture lost Ramnath, it had just begun fundraising for its India Advantage Fund Series 3, a buyout and growth-focused fund targeting $500 million. Though Ramnath’s departure sparked predictions of the fund’s (and the firm’s) downfall, it has so far managed to raise a total of $350 million.

And although the departure this week of Banerjee, who was leading the fundraising  for the Series 3 fund, has no doubt come at a bad time, with a team of 23 investment professionals (excluding associates) behind it, and the deal flow ensured by the ICICI name, there can be few who doubt the firm’s ability to move on.