IDFC Capital to market fund of private-equity funds in Singapore

IDFC Capital (Singapore) is about to begin marketing a fund of private-equity funds that will focus on Asian and emerging-market portfolios. Its parent company, Mumbai-based Infrastructure Development Finance Company (IDFC), is stumping up $50 million to get the ball rolling, and IDFC Capital (Singapore) hopes to raise up to $500 million.

This represents the opening move for IDFC to become an international manager, expanding its Indian businesses in private equity, infrastructure and funds management.

The Singapore office was actually established in 2007 with the hiring of Veronica "Ronny" John, CEO of IDFC Capital (Singapore). She helped build an investment team and the required governance structure in Singapore; then plans were delayed by 2008's market turmoil, when global institutional investors, endowments and family offices were not prepared to invest in new products.

John plans to begin marketing the fund actively in Hong Kong and other Asian markets this month, and has also set up relations with placement agents in Europe and America.

She describes the FoPEF's strategy as specialist, allowing a small number of limited partners, mostly from Western countries, to take direct stakes in emerging-market private-equity funds. "There's no benchmark, and we must be able to assess first-time [general partners]."

There are a handful of other boutiques in this space, as well as a few larger shops such as Partner Group with emerging-market PE expertise. But some of these tend to focus on only developed Asian markets, for example. In other cases, IDFC Capital would like to co-invest with them.

IDFC Capital's fund of funds aims to invest 25% of its portfolio in China and 25% in India, which have the most evolved, and therefore least risky, profiles in emerging markets for private equity. It will allocate another 15% to Southeast Asia, 15% to other Asian (including Central Asian) markets, and 20% to other global emerging markets.

John got her start in emerging markets in 1994 with an eight-year tour in Khazakstan, where she helped facilitate the privatisation of state assets as a consultant. She also advised on the breakup of Soviet-era amalgamations and supported small- and mid-sized company formation. She also worked for an investment fund involved in private equity and workouts.

In 2002 she went to work at the Asian Development Bank, which is a shareholder in IDFC. There she was involved in manager selection and helped to oversee a portfolio of about 40 external fund managers, which were directing capital to develop local economies and capital markets, with sustainability and social governance parameters. This experience also included two direct investments, one in the Mongolian Trade & Development Bank, and one in Afghanistan International Bank, which today remains a profitable and clean lender. "I still babysit that one," John says.

After a stint in London petered out, she accepted an offer in 2007 from the senior management at IDFC to help take the company global with the Singapore operation. With IDFC's commitment now finalised she has already begun the work of selecting emerging-market private-equity managers.

John cites two competitive advantages IDFC Capital intends to provide its investors. First, it is aware that its LPs will probably want to develop direct relationships with its investee managers. Instead of blocking those, IDFC Capital will facilitate them, and expects over time that its investors are going to come and go.

Secondly, on the investment side, it is building in a focus on sustainable investment and environmental and social governance. One of IDFC Capital's investment consultants is Melissa Brown, a former broker and executive member at ASrIA, where she developed a research team for investors and multilateral organisations to integrate such factors into their Asian portfolios.

This isn't just to be progressive or touchy-feely. "ESG principles allow us to unlock value in managed assets and mitigate risk," John says.

In future, IDFC Capital (Singapore) intends to expand into other areas of asset management, either in strategies other than private equity, or perhaps in more narrowly defined areas of private equity such as clean-tech. It can also play a role in helping IDFC broaden its Indian funds businesses to non-resident Indian investors. But that's for later; for now, John and her team will be focusing on their debut FoPEF.