Luis Miranda: Back the team that can take bold calls

By: Shishir Prasad/Forbes India

Luis Miranda tells Forbes India that markets are way off their peak and this is a great time to invest in private equity

Luis Miranda
Profile: Former Chairman, IDFC PE
Career: In 2002, he set up IDFC PE and in 2010 he stepped down as president & CEO. He was earlier a partner at ChrysCapital. Prior to that, he was a key member of the startup team at HDFC Bank
Education: MBA from the Booth School of Business, University of Chicago; a member of the Institute of Chartered Accountants of India
Interests: Involved with a few not-for-profit education initiatives

One of the key challenges of private equity (PE) in India is the lack of authentic performance data. Every fund claims it is in the top quartile, but from anecdotal evidence, it is safe to say that PE as an industry, has not outperformed the index. But there is a large diversity in performance: Some managers have significantly outperformed the market; and many will struggle raising their next fund.

Many Indian managers have told their investors that the valuations in India are high. Valuations in India have never been low. If you are getting a low valuation in a deal then you have to worry about the quality of the promoter. Today, markets are way off their peak, and I think this is a great time to invest in private equity. If PE fund managers go out and find good promoters to back, the future can be very bright.

Most PE funds investing in India raise most of their money overseas. But many of the overseas investors have lost a lot of money after 2008. They are sitting on the fence and not allocating fresh capital. Hence, Indian investors have a great chance to invest in fund managers that would have normally not approached them at all.

But a lot of PE fund managers raise money through intermediaries whose main objectives are the fee. Hence, no proper analysis is being done while selling these funds to investors. Investors need to realise that PE investments are illiquid.

It is important, therefore, to look at the team. How long have they known each other? What is their track record? What are their skill sets? Is the team adequately incentivised? In PE, you may not see any returns coming in the initial three to four years. So it is important to have a team that will stay together.

Today, I see managers wanting to raise large funds. The problem is that they take longer to deploy the funds and carry (PE manager