July/August 2011 • Issue 52 i n fo c u s parag saxena | new silk route Best foot forward March 2011 • Issue 48 Saxena: confident in future LP support New Silk Route gained a lot of unwanted publicity earlier this year when it emerged that one of its founders was being charged by the SEC in the Galleon insider trading scandal. But co-founder Parag Saxena says the growth capital firm has worked to move forward and remind LPs private equity is a team sport. By Christopher Witkowsky f the partners at New Silk Route needed evidence that the immediate task of formulating a cohesive message for LPs. firm’s limited partners were happy with the performance of the Suddenly, their job became not just about finding the best fund, a big vote of confidence came in May when close to 100 investments, but about reassuring and shoring up a base of LPs that Ipercent of LPs met a capital call. consisted of large institutions experienced in the asset class and The firm had for months been dealing with fallout related to not in the mood to deal with scandal, especially in an uncertain co-founder Rajat Gupta, who was caught up in a wide-ranging economic environment. insider trading investigation involving hedge fund giant Galleon At a recent meeting in the firm’s New York office Saxena Group. Gupta was accused in early March by the US Securities declines to discuss Gupta’s case in any detail, but says he and other and Exchange Commission of sharing confidential information to firm principals reached out to LPs when the SEC charges were Galleon’s founder Raj Rajaratnam, which the hedge fund executive made public. About a week after the SEC filed charges against used to generate $18 million in illegal profits and loss avoidance. him, Gupta decided to take a leave of absence. New Silk Route’s Both had been on Goldman Sachs’ board together. Gupta has partners immediately set about getting in touch with LPs to let denied the charges. them know about the situation. New Silk Route, founded in 2006 by Gupta and Parag Saxena, “We reminded LPs that this had nothing to do with New has been working to invest its debut $1.25 billion fund mainly in Silk Route … it had to do with Rajat’s board memberships with India and the Middle East. The news that Gupta, who was chairman Goldman Sachs,” Saxena says in a recent exclusive interview with of the firm, was potentially in trouble with US regulators came PE Asia. “LPs want to know, ‘what does this mean for me?’ On as a surprise and shock to the firm’s management, who faced the that front, ‘in terms of your investment’, we told them, ‘there is ➟ Copying without permission from PE ASIA is unlawful PE ASIA 19 in focus July/August 2011 • Issue 52 ➟ absolutely no change’. Our deal flow is as some time to digest the situation. I don’t want foundations, took on more of a high-level strong; our team, with more than 25 people someone coming back to us saying, ‘I made a strategy role at the firm, helping out with and 10 partners is a deep one.” dumb decision or you didn’t give me time to names and contacts when needed, and As weeks wore on and LPs were able to think,” Saxena says. spending time shaping the firm’s direction digest the news about Gupta, the firm made When the firm made the aforementioned going forward. “In that sense, he was like sure to “get something written into their May capital call, one of the LPs that had Rafa Nadal, he had all aspects of the game; hands”, in terms of updates on the situation, agreed to buy a portion of Lehman’s LP but this is a team sport, different players and the leaders met with the LP advisory interest contacted the firm and asked why can take up different parts, which is what board for in-depth discussions about Gupta as its capital call was so small, thinking it had has happened,” Saxena says. “It’s not a well as more routine updates about the firm doubled its commitment. The firm explained tennis singles game, it’s a basketball game.” and its portfolio companies. to the LP that it was allowing more time As with any key-man issues, LPs The discussions haven’t stopped, either. before closing the transaction for the LP to will have a big say in Gupta’s future The firm continues to keep LPs apprised of consider the Gupta situation. The LP came with the firm. First, it will depend on March 2011 • Issue 48 new developments and answering questions back shortly and said they still wanted to buy the resolution of the case against him, from investors who want more information. the fund interest. One LP that wished to remain anonymous “It was gratifying to see someone who said they were updated “promptly” about had some time to think about it, a very the situation, by phone, then mail and then professionally run organisation, that said, ‘we through the advisory meeting. “We are still want to do it’”, Saxena says about the confident that the leadership will overcome secondary purchase. the challenges,” the LP says. The real test as far as LP support for New A team sport Silk Route came in May, when the firm issued As Gupta’s legal issues are not resolved, his a capital call that was met by almost 100 role at New Silk Route remains uncertain. He percent of investors. “I’m comfortable from is not on the investment committee anymore, a fund point of view … that was a vote of and he is not in daily communications with confidence, the check in the mail has actually other partners, Saxena says. He did not serve shown up,” Saxena says. on any portfolio company boards and he was There was another encouraging not the originator of any of the firm’s 14 demonstration as well. New Silk Route had portfolio company investments, Saxena says. two LPs that had to sell their interests in its The point the firm tries to stress with its debut fund on the secondaries market because limited partners is that even with the absence of the economic downturn. One of the LPs of Gupta, New Silk Route has a strong stable that had to sell was the bankrupt investment of talented investment managers, each bank Lehman Brothers, which held a $125 focusing on different aspects of the market, million original commitment. According who are able to guide the firm’s strategy. to Saxena, the process of getting the “Rajat [Gupta] is sui generis, there’s no commitment “out of Lehman” and through one else quite like him on the planet. He’s the bankruptcy court took a long time. New extremely smart, he has an unbelievable Silk Route offered the stake to its existing Rolodex. If I went to the South Pole, I could LPs earlier this year and within two weeks of call Rajat, and if he didn’t know someone marketing the fund interest, had firm interest directly he’d call someone who did,” Saxena in about $90 million of it. says. “It’s very unfortunate the situation he’s in. The secondaries sale was set to close 28 At the same time, we have 25 people who do February, which unfortunately was the day different things, 10 other partners who bring before the SEC charged Gupta, Saxena says. deals to the table.” The firm’s lawyers advised it not to close Gupta, the former head of McKinsey the secondary transaction as a result. “Our & Co and politically well connected via lawyers said, ‘don’t close just now, give them involvement with various advisory boards and 20 PE ASIA Copying without permission from PE ASIA is unlawful in focus July/August 2011 • Issue 52 and whether he is exonerated, given a Other partners include Jacob Growth in the portfolio minimum punishment or faces something Kurian, who brought experience in One concern about India in general is that more extreme. the consumer and retail sector; Vivek exits can be hard to come by, and New Silk In the meantime, the firm will Sett, who worked in telecom and Route has not yet had a major exit. Saxena continue moving forward, even manufacturing; Darius Pandole, who had points to growth in the fund’s underlying expanding into other investment areas been in Indian private equity since the portfolio companies as proof of the fund’s when opportunities arise. In March New early days of the industry in the 1990s, expected positive performance. Silk Route added Supratim Bose to its helping run a fund sponsored by George “If revenues are growing, if EBITDA management team to build a medical Soros; and Anand Dorairaj, who came is growing, then you will get a good devices-focused platform. Supratim was from Citi where he worked as head of return at some point,” Saxena says. “The a 28-year veteran of Johnson & Johnson, mergers and acquisitions and a senior capital markets won’t shut down forever, where he worked as group chairman emerging markets specialist. Also, Sanjeev and if they do, you’ll see some other of the medical devices and diagnostics Chachondia brought strong telecom and phenomenon.” Referring to the thriving March 2011 • Issue 48 group for Asia. transportation-related experience. secondary market for sales of private ➟ “All the LPs are solidly on board, and watching carefully” Saxena: investments will find an exit route Copying without permission from PE ASIA is unlawful PE ASIA 21 in focus July/August 2011 • Issue 52 “It’s not a tennis singles game, it’s a basketball game” March 2011 • Issue 48 ➟ interests in social media companies like yet, “that will manifest itself in an excellent exposure to India’s mortgage market through Facebook, Saxena says: “Look at Facebook return for people eventually”, Saxena says.