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1. DIGEST145
June 13, 2014
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PE and SWF Bid for India’s Essar Unit Aegis
Indian PE Tipped to Grow in Coming Decade
Legendary VC Innovation Impact Probed
More Direct LP Deals? Norway’s SWF Advised
to Copy Canadian Model
US Public Pensions Increase Alternative
Assets Holdings
Quote of the Week: M&A Drivers
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PE and SWF Battle to Acquire India’s
Essar Unit Aegis
India’s Essar Group is reportedly reviving an attempt to buy Aegis, an outsourcing subsidiary, for 1.5
USD billion. The size makes it the buyout of the week. According to an article in an IT outsourcing
trade publication, Essar is negotiating with private equity firms such as KKR, Blackstone, Warburg
Pincus, General Atlantic and Temasek, according to the report which cited unnamed sources for the
news.
Indian PE Tipped to Grow in Coming
Decade
Over the next 10 years, the size and nature of private equity in India is expected to be similar to other
developed markets, growing to over USD 40 billion in 2025, according to PWC, which recently surveyed
private equity professionals in India. PE investment in India and China started around the same time
but the markets evolved differently. Investments into India grew at a moderate pace reaching USD 2.6
billion by 2005, but flows into China “rocketed” from 2004 onwards, reaching 9.6 billion USD in 2005,
largely driven by investments in the financial sector, which attracted almost two-thirds of all capital
inflows. (See charts above).
Other findings:
• Growing middle class is attractive. Apart from urban consumerism, PE fund managers believe that
over the next four to five years, rural consumption will grow too. Together with the welfare schemes
announced by the government, this is likely to put more incomes in the hands of rural India.
• PE managers believe that there are a number of Indian businesses that are globally competitive as a
result of market liberalization.
• The revival of the investment cycle, spurring manufacturing growth is likely to give a fresh impetus to
these businesses. A majority of the respondents see opportunities for them to invest in scaled busi
nesses as they grow in India and globally.

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Legendary VC Innovation Impact
Probed
For those that like academic research on private equity,
you can get the latest Coller Institute newsletter sum-
mer issue now. One of the studies in this edition is an
award winning PhD paper on measuring the impact of
VC investments in high tech business to find out if it
really does drive the commercialization of innovative
scientific and technological discoveries, as well as eco-
nomic growth, which is a long-held belief in places like
Silicon Valley and other technology hubs. The researcher found empirical evidence that VC financing
has a positive, causal effect on the diffusion of knowledge and described two mechanisms that ensure
that diffusion, but she warned that it is not and should not be the only way of financing innovation so
that society benefits.
The researcher notes that VC was not involved in the early development of the Internet, which traces
its roots back to US military research and development through DARPA and colleagues at CERN. The
innovation was underway long before there was widespread commercial adoption and the entry of VC
investors (who entered the fray with their Netscape investment). The researcher said, “If you were to
decide that you are only going to finance innovation with VC, then innovation would be focused on those
areas that will have high short-term rewards. We would have a world full of apps, but what would
that mean for innovation over the long term?” Overall, the study results suggest that VC brings about
“knowledge spillovers”, and “affects the direction of aggregate innovative activity”.
More Direct LP Deals? Norway’s SWF
Advised to Copy Canadian Model
• PE funds are in particular keen to support global Indian businesses as long as they continue to lever
age India’s low-cost manufacturing and service base.
• Investors are hoping for valuations in India to get “more realistic”.
• Consumer sectors are in focus, followed by sectors such as financial services, and infrastructure in
the next two to three years. (Image source: PWC)
The Canadian Pension Plan has a track record in making direct PE investments and its strategy is
slowly making it on the smart money radar. The latest evidence of its winning ways is the news in
PI Online that Norway’s pension authority commissioned a review of its USD 870 billion sovereign
wealth fund and the advisory team recommended that the fund should take more risk and should
adopt a cost management model that was pioneered by the CPPIB. It is not clear from the report in PI
Online if the recommendations extended to private equity and other illiquid assets, or the kind of direct
private equity investing that the CPPIB has pioneered, rather the focus was on the mode and portfolio
strategy recommended. It did say that the overhaul of investment activity should begin with another
illiquid asset, real estate.

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A new study from PEW Charitable Trust found
that alternative asset holdings in US pension
funds doubled over the past six years. The study
is generating a good deal of media attention
these past few weeks. The alternative assets
referred to are private equity, real estate, and
hedge funds. The research organization ex-
pressed concern about the trend and suggests
that State pension funds should be better moni-
tored by the public. It is concerned about in-
transparency, high fees, and risk of alternatives
compared to bonds and fixed income assets.
The media covered it because private equity and
hedge funds are political and regulatory topics
in the US at the moment as policymakers seek
to remove a range of potential conflicts of interest issues from the financial markets. (Image Source:
PEW)
US Public Pensions Increase Alter-
native Assets Holdings
Quote of The Week: M&A Drivers
“The drumbeat for buybacks and dividends has quieted down. Boards are in an era where they don’t
want to just be good custodians. You don’t get credit as a CEO or board member
for being that any more. Now investors want growth and efficient use of capital.”
Who said it: Andrew Bendar, Perella Weinberg Partners, an independent advisory
and asset manager
In context: The M&A market is climbing to levels not seen since 2007 and Bloom-
berg probed the trend in a feature article. Apparently publicly traded companies
are under pressure to make acquisitions, large ones. Andrew Bendar, an M&A
advisor that has been through a few cycles, commented that the difference between now and the last
M&A boom is that this one is driven by large publicly traded companies, while the last one was driven
by private equity investors who were able to tap into easy debt markets. Bendar said that the stock
market is rewarding acquisitive CEOs in most cases with more demand for their company’s shares,
driving market caps up. (Image source: BloombergTV)
Where we found it: Bloomberg

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