Flexible investment, fast returns — the Creador way

When it kicked off in 2011, Creador, a private equity firm that provides growth capital to companies, had to scale down its ambitious target of raising $300 million for the first fund, to a more modest and realistic $130 million. This was in 2011-12. But then in 2014, Creador, with a three-geography team and with a focus on South and South-East Asia, raised a second fund of $330 million, which has been invested out.

It is now in the market raising the third fund and, going by private equity industry sources, has raised $400 million of a proposed $450-500 million.

All that Anand Narayan, Senior Managing Director, Creador Advisors India Pvt Ltd, which advises Creador in its investments in India and South Asia, is willing to say about the third fund is that its investors are split between the US, Asia and Europe. This again is reasonably well split between institutions, endowment funds, family offices, and fund of funds.

But what Creador has done ever since it raised the first fund is to go back to its investors almost every two years to raise a fresh fund on the back of a strong exit track record.

The first fund, according to Anand, happened under difficult macro-economic circumstances – there was a lot of mortality in the fund space, Creador was a first time fund and a first time team; all in all, a concoction at that point of time which was not the choice of Limited Partners (LPs). Creador invests in Malaysia, India and Indonesia and will shortly start investing in Sri Lanka and the Philippines.

Anand says Creador invested the first fund in over one-and-a-half years. It is doing well and the PE firm has sold two of its India investments – Cholamandalam Investment and Finance Co and Repco Home Finance – with about 3.4x returns in dollar terms. “We returned 110 per cent of the fund in four years. You will rarely find this kind of a track record outside,” he adds. Creador’s second fund was larger — $330 million – and that too got invested in about two-and-a-half years, when the firm expected it to last three years. It invested about $85 million in four companies in India from that fund – PC Jeweller, Vectus Industries, Somany Ceramics and Ashiana Housing. The balance was invested in Malaysia and Indonesia.

According to Anand, Creador is flexible in terms of investment style. It straddles across PIPEs (Private Investment in Public Equity), private, build-outs, platform plays, acquisitions and minority stake. The strategy is to invest in a sector that has a track record of value creation and a company with profitable growth prospects that will enable Creador make good returns, and where it has the skill sets to help the company build a good team.

Creador, he says, was able to complete investing from its first two funds in two-and-a-half years, mainly because it operates in three geographies and has a team of 25 investment professionals. It has built the team strength not for just the funds it has under management, but for future fund raises too. It has told its investors that it will not raise larger funds – of say, $1 billion – and will keep it at around $500 million, but will come back to them in shorter periods if necessary.

A large fund, according to Anand, could put pressure on the teams to do sub-optimal deals. It has told its investors that it will try to return capital faster. “We may do three-year fund raises, because we have a large team. We don’t want to vacate investments in the mid-market space, while selectively targeting larger size investments,” he adds.

Along with the progressively increasing size of funds it manages, Creador will increase the upper size of investments it makes in companies.

It had done deals earlier at the $10 million level and at the $70 million level. Now, it will invest between $20-70 million while trying to keep the sweet spot at $30-40 million. This means in a $400 million fund, it will be able to do 10-12 investments.

“There are good opportunities at a $20 million bracket and there are also good opportunities at a $50 million bracket. The fund will play both,” says Anand.

The stake Creador picks up in the companies also varies. In Cholamandalam Investment & Finance Co, for instance, it had a 5 per cent stake, which it sold recently at a reported 3.7x returns. And, it has picked up 100 per cent stake in companies, not in India though. In these companies, Creador builds them to scale and then will sale its stake.

Creador seems to be sector agnostic in its investment.“What you have missed is we have a specific negative bias. We don’t prefer B2G (business-to-government) companies.

Most of our investments are B2C businesses. They may not be conventional consumer businesses, but they are one selling to many consumers,” he points out. The investment opportunities in B2G or large B2B are more than in B2C, but, says Anand, Creador prefers not to look at them.

“We are never stressed about having to close a deal ASAP,” he says and adds, “your limited partners are not going to kill you for not doing a deal. They are going to kill you for doing a wrong deal.”

Anand justifies Creador’s track record in returning capital to its investors in two-three years, much faster than most other PE funds, and wonders what is wrong in doing so. “This ability to recycle and the confidence that we will be able to find new opportunities comes only when you have a team, process and a structure in place,” he says.

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