Q&A: Morgan Stanley’s Man In India

Sep 2 2008 | 12:54pm ET

(Source: VC Circle) -- In May 2008, Morgan Stanley Infrastructure Partners announced the closing of a $4 billion fund to invest in infrastructure assets globally.

The firm has now opened an office in Mumbai and has moved New York-based Gautam Bhandari to India to head up the operations in the subcontinent, the Middle East and sub-Saharan Africa. 

Bhandari, who reports to Sadek Wahba, global head of Morgan Stanley Infrastructure in New York, and regionally, to John Myers, managing director in Hong Kong, views India as a major investment opportunity. The MSIP fund will look at the entire value chain of infrastructure in India including transportation, energy and utilities, telecom, and more. The MSIP fund may also make PIPE transactions and look at co-investing or partnering with other funds in India.

VC Circle's Shrija Agrawal spoke with Gautam Bhandari on MSIP's strategies and expansion plans.

VC Circle: Tell us about your fund. Why has your $4 billion infrastructure fund invested in India?

Bhandari: Ours is a global fund. We have no fixed geographic allocations. Within certain parameters, funds will be allocated to the best opportunities. Having said that, India is clearly a key focus of our activity and we see tremendous potential for infrastructure investment in this market.

Demand for infrastructure assets has increased beyond the traditional markets and is now well recognized as a distinct alternative asset class. In India, the industry has strong support from the government to develop new infrastructure projects and this is very positive in our view.

VC Circle: What do you think of the investment climate now in India?

Bhandari: We believe that today's environment is an attractive time to be investing capital in infrastructure assets in India and in other markets.

In India, our timing is also consistent with Morgan Stanley's strategy to build a wholly-owned platform in India, which we executed last year. Infrastructure investing, we believe, is a critical component of a full service business as clients look to Morgan Stanley not only for advice but also for capital.

VC Circle: What kind of infrastructure businesses you think would be worthy of putting in money in India?

Bhandari: The fund's initial investments have been outside of Asia. Here in Asia, our activity level and dialogue is quite high and the outlook looks promising. Areas in which we see both global and regional opportunities are transportation, energy and utilities, telecom and social infrastructure sectors. We have yet to invest the majority of our fund and so have ample room for the right opportunities.

VC Circle: Globally, infrastructure funds are treated more like project financing where people generally focus on how to get money back and are risk averse. What is your strategy?

Bhandari: We are fundamental, For example, we are cash flow based investors and we seek assets that exhibit characteristics that associate with the provision of public goods and essential services that are of long useful lives. Clearly, assets that operate within regulated environments and that are insulated from business-cycle fluctuations, and most importantly, assets that have stable and predictable cash flows, fall in that category. However, the fund is not restricted to investing in just projects. We look at operating companies.

We believe that a diversified portfolio made up of assets with these qualities should demonstrate high levels of predictability, both short and long-term future cash flows, and generate attractive risk-adjusted rates of return.

VC Circle: There are many infrastructure funds already operating in India. How do you think your strategy different?

Bhandari: We have the advantage of being a global fund and therefore we have the ability to analyze opportunities across geographies and invest only in the best opportunities. To achieve this, we operate as a global team and identify opportunities across different categories of infrastructure assets.

VC Circle: How big is the investment team in India?

Bhandari: We don't give out details on our teams, but my initial team is expected to grow further as opportunities emerge. We have a dedicated team and are recruiting externally as well because we are confident that we will be active in this region for a long time.

VC Circle: Would you be making PIPE transactions especially after the market regulator, SEBI relaxing the QIP pricing norms?

Bhandari: Yes, we will be looking at PIPE investments. For us, as fundamental investors, the reform and relaxation of QIP pricing is important as current market conditions, including interest rates, inflation, and commodity pricing, are part of our valuation process.

VC Circle: What do you bring to the portfolio companies?

Bhandari: We not only bring our capital to potential situations or to potential partners, but also our global expertise and the team's experience. For instance, the fund's existing investments include a container port, airports, an electricity transmission and distribution company, and a car parking system. We believe this combination of capital and operating expertise can be very valuable.

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