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True North, an Indian private equity firm, is moving into the private credit market, according to True North MD Vishal Nevatia.
Dhanjal, Swaraj Singh
10th of July, 2021
True North, one of India’s oldest private equity firms, is branching out into the private lending market. In an interview, managing partner Vishal Nevatia discussed the credit potential and how technology businesses have evolved to make them appealing to private equity investors. Excerpts that have been edited:
You’ve been focused on private equity for almost 20 years; why the abrupt shift towards private credit?
So, first and foremost, it is not a surprise; it is something we have been considering for the past five years. The notion has always been that we must first lay a solid foundation and demonstrate that we can excel at one core product, which is private equity. And, in our opinion, to prove that you are performing well in private equity, you should execute on three full fund cycles. As a result, we believe it has happened to us. We’ve established a brand and a business understanding that can simply be applied to various alternative asset types. After private equity, the most appropriate one is performing credit.
Even if we have a billion-dollar private equity fund, you know we can’t go out tomorrow and raise $4 billion in the next fund—even if we’re doing great. You can only get to $1.3-1.4 billion in a very gradual manner, and so on. As a result, the world’s largest private equity funds have all broadened their portfolios to include various goods.
What is the size of the private credit market opportunity? Do you think this is a more tough industry today than PE, given some of the concerns with massive defaults in corporate India and fund managers suffering huge losses?
From a market standpoint, the future market opportunity for performing credit is enormous. Today, private credit is where private equity used to be 15 years ago. Okay, some people have made blunders and lost money.
Few fund managers have been successful in raising, deploying, and delivering returns on performing credit. However, the ecosystem has learned what works and what doesn’t during the last five to seven years of investment.
When will the credit platform be operational?
We’ve put together a squad. We’ll make decisions on various areas of the fund strategy over the next 30 days, such as how much money to raise, because you want to make sure you raise a bit less than you can genuinely deploy to ensure we do a good job and don’t take on too much money and then botch it up.
Many private equity firms are increasingly concentrating their efforts on new-generation technology companies. What is True North’s game plan?
We predicted that by 2020, all businesses will be technology-enabled, and technology will no longer be a support function, as well as an omnichannel shift in which Amazon will become omnichannel, and we’ll get closer to Walmart, and Walmart will activate completely digitally-enabled to get closer to Amazon, back in 2014-15.
As a result, we’ve been pushing all of our current firms and enterprises to be highly digital for the past five years.
So, there are two types of organizations: digitally enabled, which are existing firms that have included digitalization, and digital-first, which are businesses that are built from the ground up to be digital.
We’ve been looking at practically all of the digital-first businesses today, but we’re waiting for them to grow, and we’re confident that now is the time to invest in them because they’ll want to be at a stage when their maturity is relatively low.
We believe there are 50 to 70 such enterprises in India today that are digital-first and have achieved a maturity level where the risk of capital loss is low. We estimate that the number of these enterprises will grow from 50 to 70 today to 250 or more in the next five years.
The original version of this article appeared on livemint.com.
personal credit North is the true north.
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