ft.com/alphaville

Blackstone is “inexperienced” in India, and has missed out on solid investment opportunities in the country, Akhil Gupta, chairman and managing director of Blackstone India, said in a Q&A with India’s Business Standard newspaper.

Blackstone began its Indian operations less than two years ago, and recently made its first foray into the Indian media sector, investing $275m in media conglomerate Ushodaya Enterprises - the largest private equity investment in the sector so far.

Aside from media, Gupta told the newspaper he expects significant private equity participation in pharmaceuticals, real estate, export and infrastructure.

But Gupta said that despite considering over 250 deals in the last 16 months, Blackstone had only invested in two companies. “Our investment committee approved four deals. We selected these four out of the 250 we looked at. But we could invest in only two.”

In one case, the group had been stymied by inexperience. “The other one was a public company and we did not have our framework ready in time for investing in public companies,” Gupta said. “By the time we finalised our guiding principle for investing in public companies, the stock of the company went up 30 per cent.”

Gupta said Blackstone was now ready to tackle the challenge of public companies - although they remain very selective and would require a seat on the board.

Other Blackstone insights from the Q&A:

• Guiding principles of investment - “We have to feel comfortable with the entrepreneur of the company. In fact, we look at the entrepreneur first — his ability and keenness to work with us. If we think we will not be able to gel well with the management, we simply don’t invest. Then we look at the competitive situation of the company in the business it is in and its capability to grow.”
• Minimum ticket size of investment - “We normally look at investments only above $25 million. But this is also an arbitrary figure. If we find a compelling proposition where we can create value and get an over-25 per cent return, we may think about diluting that threshold. There is no upper limit of investment. We prefer to do due diligence in a non-competitive situation where we are not competing with any other PE player,” Gupta said, conceding “the Hutchison-Essar was a big deal where you could not have this kind of exclusivity.”
• Assessment of Indian market valuations - “You need to look at valuations in relation to the expected growth. See, we are not a short-term player. And we are confident that the India growth story will continue. There may be a slowdown in growth due to internal and external policies. But overall we don’t see any problem in the next five to seven years. Huge investments will be required to prepare for growth which is propelled by booming consumer demand. This, I believe, is irreversible.”
• Predictions for pe investment in 2007 - “I don’t want to predict any number. But our vision is clear: we want to grow in India. We plan to increase our size, in terms of professionals. We have seven people on our rolls and want to add another two this year. But finding people of high quality is the biggest challenge. We want to have the best team in the P-E industry in India”
• How is Blackstone different from other private equity players? - “A clear differentiator is that we believe we are value-added players. We want to help enhance the objectives of the entrepreneur subject to only one constraint — we need to earn on-target returns on the capital invested. We also position ourselves as catalysts for cross-border activities and as partners for growth over a long term. We are in a unique position to bring in our global expertise to enhance performance. We will be performance-driven at any stage of our partnership. We want to have the highest standards of transparency and governance in our portfolio investments.”