Tushar Garg: Investment Professional at Godrej Fund Management

In conversation with Tushar Garg, an Investment Professional at Godrej Fund Management. After working in sell side, transaction advisory he started his career in PE industry. We would like to understand the role of an Investment Professional at a PE industry from him and how to become one.

 

1. Describe your work and work profile in a very simple manner?

   

A brief perspective on the PE industry - large insurance houses, pension funds (and similar players) sit on a large corpus of funds. They generally are on a lookout to make a good risk- adjusted return on this corpus. Since this is a non-core activity for them they look for manager (or general partners or PE funds) who can manage a portion of their funds by investing it in promising assets and providing an exit over a gestation period of 5-7 years. These PE funds are hired for their expertise to sense whether an asset is a good investment or not.
Private Equity (PE) generally has 4 buckets of work :

• • Raising money from Limited Partners
• • Deploying money in potential assets
• • Managing the investee asset
• • Providing an exit from the investment

Being a lean team, my work revolves around all four basis the requirement and ongoing engagements.

Fundraising :

I would help the CEO in making pitch/marketing material to showcase to potential limited partners to help raise funds for our PE fund. This marketing material is very fund specific and generally talks about ones thesis of the geography (say a particular fund is investing in India, then what is the rationale for that) and the asset-class (say a particular fund is investing only in infrastructure or real estate or somebody is sector agnostic) that the PE look into. Since many of the institutional limited partners are based out of India, the Indian PE funds can either adopt to raise funds in INR terms or can look into a hedging arrangement.

Deployment :

While I am currently part of a real estate-focused PE fund, I will cover about the deployment function in general. There is a huge funneling that happens here – i.e. PE funds generally have a pipeline of deals being showcased by either investment bankers or an in-housed sourced deal. These prospective deals need to be pressure tested on various angles – how is the industry, business model of the company, externalities that can affect the business, customer base, future prospects for the company, value drivers, promoter group and then the valuation. The valuation is done from the perspective of finding what is a probable exit multiple and returns (IRR) that the PE fund can make if the company is invested into.
The deal is then socialized with the Investment Committee (these are generally the top brass of the PE fund, at times also involving representation from limited partners) and basis their go/no-go decision a detailed assessment of the deal is done - by way of appointing independent diligence consultants, etc. Once the diligence findings are factored into the valuations and even then the results look good, the deal is again taken to the Investment Committee for a final decision. Basis this call, the investment is made in the company.

Asset management:

PE players generally come with a good strategic experience and they can help their investee companies by finding the right human capital, co-strategizing the business or at times hand-holding the business operations. This is extremely important exercise because herein an attempt is being made to actually get the cashflows (or overshoot) considered in the initial valuation exercise. If the operations of the company are not well-aligned, then it may so happen that the cash-flow is not achieved and the entire return-thesis goes for a toss!

Exit :

Once the asset is stabilized and has reached a desired level, a PE would lookout to get an exit from the asset so that the LP money can be repatriated, along with the returns of course. Typically, a PE fund would have some hurdles return rate, and if they are able to deliver a return beyond that hurdle rate then they get to share the returns above it with the limited partners. So this can be a huge inflow item for the PE player and is a great function of whether the deployment was done in the right asset, whether the asset was managed properly over the investment tenure and whether they are able to find the right exit. The exit can be done via various avenues – public listing, selling stake to a financial player (another PE fund), selling stake to a strategic player (another asset in the same industry), or the promoters of the asset may buy the stake.

 

2. Can you share your Daily Routine with us?

As I mentioned earlier, I am part of all the functions – so depending on which function- hat I am wearing on a particular day, my routine would differ. To give a flavor :
I would generally start my day early, around 6 am, to look at any LP email or any immediate requirements that they have (since these are different time-zones, it helps to look at your mailbox early on). I would reach the office at 10 am. The first 3 hours are usually spent in typing out responses, doing analysis on a particular asset-class etc. and communicating the result/details to the LPs.
The remaining time generally goes in evaluation phase - evaluating a potential deal on the table (since I am part of the real estate segment, these are generally land parcels or distresses real estate developer that I am looking at), I will look into the particular micro-market, surrounding areas and sense the rentals/prices going around in that area. If the deal looks good, I would start the process mentioned above in the deployment section. In case there aren’t many deals in the pipeline, I would reach out to channel partners to get a sense of the market and what potential deals may be coming up. In case the CEO is about to pitch to a potential LP for further funding – I delve into the specific requirements of the investor (For example, whether the investor is looking into residential real estate, commercial real estate or a mixed-use) and prepare some marketing material for same. The day generally ends around 9 pm. If need be, one has to be available 24 hours for deal execution!
It is either of the activities and barely a mix of all three that happens on a particular day.
For a sector-agnostic or a non-real estate PE, this would generally entail reaching out to some investment bankers to get a sense of the deals that they have to pitch. You can evaluate them and then take a call on which one would you like to proceed further.

 

3. How did you reach this stage in your career?

I was working in the sell-side earlier (transaction advisory) and was intrigued by the way the PE players are able to take such calls on the businesses. For this, I interacted with some of my friends in the PE industry and they mentioned that valuation bit comes at the end to evaluate an asset. Firstly, it is important to form a view on the industry and the asset and once you feel upbeat about that then we delve into the valuation. For me this was slightly an unchartered domain as being a CA, I would generally look at a company from a numbers perspective and may read a couple of industry reports. But to be able to recognize the value drivers in a business, I considered a class- room fashioned training and that’s when I went ahead for MBA.
Once in the course, during the placement season, the PE fund came to hire from the campus and I was selected during the interview process.

 

4. What skills should a candidate possess if he wants to take up a profession similar to yours?

While there are various technical skills that one should definitely know – valuation, 3- statement financial modeling, multiples etc. There are many softer aspects that should also be focused on and are very important :

Market research :

As I mentioned getting a sense of the industry is very important, and you can go to any extent for that(I have done a couple of telephonic interviews with people showcasing myself to be a reporter!)

Connect the dots :

Be able to connect the various happenings in the market (impact of Brexit or US-China trade war on an Indian engineering / info-tech firm). This is important as you are making a projection on the potential returns from the asset and any market happening may have a bearing on that

Have a view :

– Why did Sensex go down? Agriculture’s contribution to GDP is reducing year- on-year – should governments still be waiving farm loans? Etc. If you are informed it is easier to talk on these pointers. The idea is not to be right or wrong, the idea is to be informed and have a view. Also, be open to intellectually challenge and also accept a contrarian view

Don’t just know formulas, know what they represent :

if you know what they represent you can communicate your findings easily

 

5. What are the Pros & Cons of your profession?

Pros :

• • Deep insight into industries, basis the kind of fund you are in (sector-specific or agnostic)
• • Interaction with promoters and investment bankers on a regular basis helps you be more informed and keeps you on your toes to identify, sense any red-flags quickly.
• • The hours are generally relaxed than that of investment bankers (10-12 working hours), however, when a deal is in conclusion stage work can get demanding.
• • The compensation aspect is decent and is linked with the investment cycle (entry-to-exit).
• • Smaller team-size gives you good exposure.

Cons :

• • A sector-specific fund can at times get frustrating as the learnings may get plateaued.
• • Smaller team-size may get messy as admin (non-core) activities may also fall on your shoulders.
• • You may spend long hours in pursuing a deal for long and it may still not fructify
• • If an investment goes rogue, the team may get to bear the brunt

 

6. What is the best way to bag a job similar to yours?

Generally, people in PE come from two backgrounds i.e. ex-management consultants and ex-investment bankers. As mentioned earlier, the role requires not only financial skillset but also an ability to connect the dots. Ideally, a candidate can look to join a Management Consulting industry and make a move after 3-4 years. Getting into an MC is also a competitive process and generally MCs hire from the B-Schools and seldom they hire fresher.
On a separate note, PE is a very closed-door industry – hiring is largely driven by internal referrals or some good HR firms. So be mindful of that front!

 

7. What advice would you give to the freshers who are willing to venture into this line?

For finance professionals, it would help to start with a sell-side role (investment banking, corporate finance, transaction advisory) that helps to brush up ones skillset and makes you realize the long-hours. Maybe it can also help one filter-out whether finance based consulting roles are a good fit or not. Post that probably try to get in touch with some recruitment consultant and reach out to people in the PE space to get a foot-door entry. Another way can also be to go to a B-school after your 2-3 years of work-ex and post Masters, trying out in a PE space or an MC space to later shift in PE.
PE is generally a lean structure and have few hierarchies, so do not focus on the designation one gets (I know people who have been associates for 5 years, but they are reasonably senior people in the industry).

 

Final Notes

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