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ASIAVIEW: From pills to property


Jonathan
Brasse

“They are the new kid on the block,” one India private equity real estate CEO said to PERE about Religare Enterprises, the Delhi-based emerging markets financial services group. Responding to our inquiries after the firm agreed to purchase a 55 percent stake in Connecticut-based private equity and real estate secondaries giant Landmark Partners in December, the CEO was adamant that a new and large source of capital has knocked on real estate’s door.

To call Religare new money would be unfair. Originally incorporated as Vajreshwari Cosmetics Private in 1984, the business, owned by the family of Indian industrialist Malvinder Singh, has a long history in the pharmaceuticals trade. But it is its forays of the last 12 months that have caught the eye of first the private equity world and later private equity real estate.

Following the June 2008 sale of its 35 percent stake in flagship Ranbaxy Laboratories to another pharmaceutical firm, Tokyo-based Daiichi Sankyo, in a deal valued at approximately $4.6 billion, it has been well known in Indian business circles that Religare has been looking to diversify its business lines. Today, it is channelling its efforts into four divisions: retail, including life insurance and equity trading; wealth, where it has set up various funds in sectors like film and art; institutions, from where it offers brokerage and investment banking services; and most relevant to the private real estate world, global asset management.

Through this last division, Religare said it aims to acquire or partner with between eight and 10 asset management businesses or affiliates over the next three years, “which could result in overall assets under management of $100 billion”. The firm had set itself the goal of building a “multi-boutique” business starting in earnest last February with the acquisition of a controlling stake in Northgate Capital, the San Francisco-based private equity secondaries business. Northgate manages about $3 billion on behalf of more than 400 institutions and high-net-worth families and individuals.

Then in December, Religare purchased a majority stake in Landmark, a deal that brings with it a large private equity exposure – Landmark’s private equity business has approximately $7 billion in assets under management – but also one that reflected its first meaningful foray into real estate investment. In Landmark, Religare has bought into a well-established business that has formed 27 funds across the venture capital, buyout, mezzanine and real estate sectors since its inception in 1989. As one of Landmark’s rivals put it: “The real estate platform has really piggybacked into a nice situation there.”

Religare said it was attracted to the secondaries space on the back of an “increasing degree of attention from institutional investors” over the past couple of years. The firm has, in effect, decided its route into real estate will be via a medium where LPs can trade in and out of the asset class without owning the assets themselves – perfect for portfolio rebalancing, something plenty of investors have wanted or have had to do lately.

A new kid on the block does indeed appear to have knocked on real estate’s door, only it’s the side door at this stage

The investment into Landmark is expected to cost Religare up to $171.5 million but expect more of its capital to flow into and through the firm. “Religare will certainly participate in the future funds of Landmark Partners,” the firm said. Furthermore, other Religare affiliates and partners are expected to use the Landmark tie-up as a conduit for Indian capital into global real estate. “With additional access to local knowledge and the relationships of Religare across emerging markets, including India, Landmark Partners can expect to raise more capital from emerging markets,” it added.

Great news then for the team at Landmark Partners, led by president and managing partner Tim Haviland. Indeed, in an announcement on the investment, he described the tie-up as an “extraordinary event” – not commonplace terminology for a corporate-level investment suggesting just how fortunate the firm believes it is. To further demonstrate its apparent fortune, Religare has stated it does not want to infringe on Landmark’s decision-making autonomy or the running of its operation. Moreover, Religare appears keen to let the work of a firm it regards as “best of breed” to continue without tampering.

That and its previously stated penchant for secondaries as its chosen way of accessing investments might explain Religare’s lack of interest in growing its own private equity real estate platform, an admission made when directly asked by PERE. The firm, however, has been reported as the lead suitor for a large stake in India real estate fund manager Indiareit Fund Advisors. According to multiple reports, Religare is to acquire anywhere between 60 percent and 85 percent of the platform from the Ajay Piramal Group, although a completed deal had yet to transpire at press time.

Reverting back to the opening statement, a new kid on the block does indeed appear to have knocked on real estate’s door, only it’s the side door at this stage.