Blackstone, StanC top-deck rejig points to massive churn in PE

After a year of extreme interest rate volatility and economic uncertainty, private equity firms are taking stock. And unfortunately it is no good news for some of the fund managers.

Top and mid-level executives in the private equity industry are being shown the door as the fund houses saw their return on investments falling to single digit.

The top-deck recast at global private equity major Blackstone Group is only the latest in string of such developments that happened over the last couple of months.

Blackstone on Monday said its India Chairman Akhil Gupta will step down and assume the position of non-executive Chairman. It was Gupta who had set up the New York-based private equity fund’s India operations. The company has brought inMathew Cyriac and Amit Dixit- both senior managing directors - as co-heads of the Indian private equity operations.

Blacksone has invested $1.7 billion of equity in 20 private equity transactions over the last eight years, to become one of the most active investors in India.The company has a team of 19 investment andportfolio operations professionals in private equity and ninein real estate.Blackstone’s real estate team is led by Tuhin Parekh, which has deployed over $600 million in the country to buy commercial properties over the last three years.

But not all investments did well.Most importantly, the value of its listed portfolio fell drastically over the last few years.

According to a report in the Business Standard, Gokaldas Exports, which the company bought 68 percent stake in 2007, continues to underperform. The stake was bought from the Hindujas for $158.7 million. Blackstone paid Rs 275 a share of Gokaldas Exports. On Monday, the scrip closed at Rs 56.7 on the BSE.

The group’s investments have suffered because many of them have been in infrastructure, where the gestation period is rather long.Blackstone’s $150 million investment in construction firm Nagarjuna Construction is now less than than $15 million due to the slowdown in the sector.

Blackstone also has stake in scam-tainted Financial Technologies. It increased its stake in the company to 7 percent in September.In the last six months, shares of Financial Technologies have crashed by 80 percent after its founders was caught up in a regulatory probe. TheJignesh Shah-led company has suspended trading on the National Spot Exchange and deferred client payments.Share price of anotherportfolio company Monnet Ispat & Energy has fallen by 70% in two years.

“Some of our listed companies haven’t done well. But we see it in the context of the broader mid-caps underperforming, and some of them were dragged down by poor liquidity on bourses despite improved operational metrics,” Cyriac was quoted as saying by The Times of India .

But here is where the trouble lies: Even though the investment cycle has changed, Blackstone has exited only two of its portfolio investments.

Last week, top guns at Standard Chartered’s private equity business left the units.

“Standard Chartered private equity’s co-head Alastair Morrison and three managing directors, Ravinder Singh Grewal, Mukul Nag and Rahul Raisurana, are among those leaving the unit…. The unit’s single biggest market exposure is in India, where its current investments are over $750 million,” The Times of India had reported .

“Heads have been rolling in the industry as lower returns from investments as well as a sticky exit environment have been impacting the business. They know it stinks under the blanket and want to get out before the stink is out in the open,” said an industry observer.

Overvaluation of assets is the reason behind this churn. Unable to deliver promised returns, exit pressures are mounting and falling values are being reflected in this churn.

In July, Varun Kapur, who looked at growth investments for TPG in India, including Greenko Mauritius and AGS Transact, quit the firm while India Equity Partners’s co-founder Gaurav Mathur also quit recently to venture out on his own .