The Economic Times (India):
Hedge funds have realised that with just a handful of private equity investors in India, there are a lot of investment opportunities to be tapped among private companies. Moreover, they feel that the potential or returns could be much larger in the private markets, compared to public ones.
Hedge funds generally do not have partners with operational expertise of running companies — something which most private equity investors have. Instead, hedge funds have people who are capable of identifying new investment options and valuations differences.
Some of the new offerings to investors by hedge funds are positioned as “venture hedge funds”.
These new funds invest in both short and long-term assets, the objective being to leverage the short-term earning in true blue hedge fund style, while gaining from long-term profits from ventures. A balance of short-term and long-term investment means that these funds are able to deliver returns consistently and regularly over their life cycle.
Vinod Sethi, investment advisor to private equity and hedge firms, says, “If hedge fund investors start investing in unlisted companies, then valuations are going to get stretched. I don’t think it will reach a stage where competitive bidding will take place between private equity and hedge funds, as most private equity funds would like to avoid such a situation. I don’t think hedge funds have the skills to invest in unlisted companies.”
Mr Bhasin believes that private equity funds will generally have an advantage over hedge funds. “It is unlikely that hedge funds will lead an investment. At the most, they may ride on the coat tails of private equity investors. Entrepreneurs may also not be so keen on hedge funds leading an investment,” he says.
Competition between PE investors and hedge funds is fairly recent even in Western markets so I am quite impressed at the speed with which these developments have occured in India.
Separately, I wonder what sort of timeframe hedge funds typically seek from investments in private companies.
I also wonder how they realise returns, given that hedge funds' traditional strengths are not in finding exit opportunities such as IPOs or trade sales. Perhaps they are bringing in partners with private equity or investment banking or even operational experience? I do remember reading some months ago that some of the larger PE guys --Carlyle? KKR? I don't remember exactly who-- have set up hedge fund-style units to compete with traditional hedge funds. Won't be surprised to learn that hedge funds have set up their own PE units as well.
Link (courtesy of Sameer Wagle): Hedge funds smell a killing in Indian unlisted firms
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