I just finished reading “The Dhandho Investor” by Mohnish Pabrai ( the man behind Dakshana). I enjoyed it and it stimulated some new thinking.
I also looked at my investing in India over the last two years. On a portfolio with 85% exposure to equities I managed a 45% CAGR(cumulative annual growth rate). I guess that may be just about okay. ( this is all in just a few boring stocks)
Will my angel investing give me anywhere close to that. I doubt it. This is what makes angel/seed investing tough in India. I hope to by investing both time and money improve my odds. I have abandoned the “spray and pray” approach where you put small amounts if you like the idea or team and trust the entrepreneur. This approach also relies on if xyz and pqr are also investing then I feel good about investing.
An excerpt from a quote from Kahlil Gibran ( full quote in book)… “You give little when you give of your possessions. It is when you give of yourself you truly give”
The full quote is more about giving selflessly to the needy ( I am atleast ten years away from that phase if I ever get there) but the first few lines lead me to think more of a heavy involvement model and not a “spray and pray” model.
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Interestingly, AIG I think is the first fund in India which is saying they will invest in their own funds…
I like this hurdle rate post tax thing, but fund management in india is way to nascent for this, not sure even the savvier private equity guys would be ready for something like this. But I think in terms of maturity, where in the US you will find funds which swear by value investing ( and go onto define investment parameters like we will buy cos which are atleast 60% of value), Indian fund management has been all over place. Maybe driven by the matter of a smaller number of stocks to pick from which suit a fund management style of operation.
Sanjay : given the exit options India offers, where there is no active secondaries market for PE investments and where you are exiting only thru an IPO or a strategic buyout , as an investor you will be constrained by the time to IPO ( being large) which as you said will impact IRR significantly.
Deepak Shenoy,
Just a small clarification. The return is post tax and there are no management fees at all. In fact no transaction fees or taxes like STT etc. Thus the fund manager can actually lose money if they deliver returns below the hurdle rate( now thats a novel thought). In quite a few cases the really good fund managers reinvest a large part of their fees back in the fund so that they eat their own cooking.
Thanks Deepak(mnadiger). It’s good fun, this stuff.
Sanjay: Interesting – a 10% hurdle rate and performance fees only above that? Probably an option if there are management fees involved as well – but hten, if mgmt fees are too high you hit the mutual fund problem of “once we get enough money to manage, we don’t give a hoot about overperformance”.
But there will be more capable folks. Gil Blake used to guarantee 100% of all losses in teh first year and then 25% of any losses (he would take 25% of profits).
You’re right; unbiased reporting of performance is not there at all, be it with PMS systems or with “advisors”. Where in the US they are going with risk assessment using sharpe ratios of advisor performances, in India we get nothing – in fact Portfolio managers refuse to divulge hit ratios, maximum drawdowns or anything like that (you hear “this is what we have, take it or leave it”)
But I digress.
To find a good investment do the research..and do not listen to others. As with all investments if you hit the curve at the right time, it will help, eg property, stocks, the next favorite dotcom idea.
In startups look at the idea, see if it scales, and then look at the team, and then look at the team again, they DO NOT need to have experience, but they goto have that drive, and vision…also look at the advisors…they must have the experience…and then pray
Iqbal
Thanks Old Hand. I looked at the blog you mentioned and then a link to the company the Prof. runs. If there was a value play like the Buffet Partnership in India I would want to invest in that. Most of these investments would be kept close to the vest but it may make sense for value investors to present their thesis after they made their investment. Most people however are not comfortable with giving clear auditable performance and charging fees based on performance. For example zero fees if annual post tax return is less than 10% and lets say 25% of the return over 10%. So if you made an annual return of say 50% you get to keep 40% and the fund manager gets 10%. If however you made 20% then you get to keep 17.5 and fund manager gets 2.5%. If you make 9% then the fund manager gets zero and you get the full 9%.