BackRohit Sipahimalani | Finding the right balance between confidence and humility
The understated and shrewd India head of Singapore government’s investment arm Temasek Holdings on his craft, and why investing is for the long term
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Singapore: Investing is a long-term career. You should not expect instant gratification, but if you are in it for the long term, it can be very exciting and gratifying," says Rohit Sipahimalani, co-head, investment group; co-head, portfolio and strategy group; and head, India, at Temasek Holdings Pte. Ltd, the Singapore government’s investment arm, which owns and manages a net portfolio of US$223 billion globally.
An understated, soft-spoken, and shrewd man in his mid-40s, Sipahimalani does not have the usual swagger of someone who plays with big money. But he knows his craft. And has got a record to prove it.
“You have to spend time in this industry and go through the life cycle of a few investments to become a wise investor," he says. “With experience, one learns to make better investment calls. And, it is always important to have the right balance between confidence and humility."
Two words that sum up Sipahimalani well.
Having worked at Temasek since 2008, he describes his role as essentially that of a “co-chief investment officer", responsible for overseeing Temasek’s global investment strategies. One of the key decisions he takes pride in was making timely, rewarding and sizable investments in Alibaba and Facebook.
In the last few years, Sipahimalani has also been responsible for overseeing all the investment activities of Temasek in India. While this forms only 4% of its overall portfolio—and is relatively a small portion compared with other markets like China, which is roughly 25%—he views India as a “significant market with a big growth potential".
Temasek’s investments in India include ACC Ltd, Adani Ports and Special Economic Zone Ltd, GMR Energy, Max India Ltd, National Stock Exchange Ltd, Tata Sky, Shriram Transport Finance Co. Ltd and Godrej Agrovet Ltd, among others. Its wholly-owned subsidiary and venture capital arm, Vertex Venture Holdings, has also invested in several start-ups in India.
Sipahimalani says that he feels pleased for having successfully positioned Temasek for the recovery in the Indian markets by “significantly stepping up our investments in India in 2013 and 2014".
He remains bullish on India for 2015 and believes the Narendra Modi government is on the “right track" in sending positive signals to global investors.
But he is quick to point out that “while market confidence has certainly picked up in the last nine months in India, investors are waiting for the government to step up public expenditure so that private sector investments can start to flow".
Which is what the government intends to do, with finance minister Arun Jaitley increasing investment in infrastructure by ₹ 70,000 crore in the year starting April, with a focus on railways and roads.
The money will come from an additional public investment outlay of ₹ 1.25 trillion over that of 2014-15.
“India is a huge, growing, middle-class economy and an emerging champion. It has looked very attractive on paper for a while, now the ground reality is starting to match this picture," Sipahimalani says.
On the performance of the Modi government so far, Sipahimalani says “on the macro-perspective, things had only improved in the last 8-9 months".
Temasek recently bought SVB India Finance Pvt. Ltd, the specialty lending arm of Silicon Valley Bank, for about $45 million. Sipahimalani ruled out consolidating the company with Fullerton India Credit Co. Ltd (FICCL), its existing venture in the debt business in India.
In his career of over two decades, Sipahimalani has worked on transactions in several Asian countries, including China, South Korea, Singapore, Indonesia, Thailand and India.
For Temasek, 2014 also marked its biggest investment year since the global crisis in 2008. Its investments in Merrill Lynch and Barclays just prior to the crisis led to multi-billion-dollar losses. Since then, Temasek has shifted bets to emerging markets, especially China, which accounts for a quarter of its portfolio.
Last year, its net new investments were around $14 billion and Sipahimalani said the current year, too, had been an equally active year. Its large deals in the current fiscal include a 25% stake in Hong Kong’s richest man Li Ka-shing’s AS Watson Group health and beauty stores business for $5.7 billion.
“We are carrying forward from last year. A couple of years back, we felt the global economy was on a steady but slow path towards recovery, and that it was a right time to step up our deployments as governments across every part of the world were doing whatever it took to restore growth. We saw the tail risks fading away, and that is what led us to step up our pace of investments," he said.
Temasek’s investment strategy is based on four themes—growing middle-income and transforming economies which mostly relates to emerging markets; investing in companies and countries with comparable advantages; sectors such as energy, technology and life sciences; and putting money into firms that have disruptive technologies or innovative business models even in traditional industries.
“These themes reflect in our investments in companies like Alibaba, Gilead Sciences Inc., AS Watson. Our traditional focus on financials continues to be there, but is now more broad based to include insurance. Beyond that we have been active in technology, life sciences and consumer sectors. We are long-term investors and that won’t change. We are seen as very active in the last two years and our view of recovery in the global economy has played out The one difference is today valuations are much higher than they were a couple of years ago," he added.
Temasek has also been one of the largest investors globally in the e-commerce space over the last couple of years and Sipahimalani believes that “any price that firms pay today to be associated with the eventual winner or the largest player in that segment" will eventually be justified.
Prior to Temasek, he spent 11 years with Morgan Stanley, holding senior positions across its Mumbai and Hong Kong offices, including co-head of the Asia Pacific merger and acquisition (M&A) business in Hong Kong, before moving to Singapore as managing director and head of South-East Asia investment in 2007.
He started his career with Citibank in Mumbai after which he spent a few years with McKinsey and Co. before joining Morgan Stanley.
“I have always been a banker and an investor. Consulting was a detour," he says.
An economics graduate from St. Stephen’s College, Delhi, he went on to study MBA at the Indian Institute of Management, Ahmedabad.
A family man whose wife, Nishta, is an emerging artist of some repute in Singapore, Sipahimalani is a father of two teenage daughters.
He says he teaches them to cherish honesty and integrity above all.
“I am convinced that in life, successful outcomes matter just as much as how you get there."
And for that, he adds, one has to invest time and energy doing the right things and building relationships and honouring them.
Sipahimalani worries sometimes about the unstable global economic environment, supported by zero interest rates, and unprecedented liquidity over an indefinite period.
“The path we take to normalcy is unclear and will obviously have an impact on our portfolio."
On the big picture though, Sipahimalani remains unflappable and enthused.
“Managing a global portfolio of Temasek’s size in a volatile global environment is both exciting and challenging. But I am never bored and constantly learning new things here."
Edited excerpts from an interview:
Temasek is one of the leading investors in the e-commerce space—from Snapdeal in India to Alibaba to upcoming Amazon competitor, Jet, and several others. Another hot sector is the taxi booking app, where you are a big investor. Are you worried about valuations of e-commerce companies and taxi booking apps?
In the tech sector globally, you could argue that the valuations of some of the deals that have been announced are quite stretched. My own view is that, and we also believe that in some of the very high growth sectors, if you pick the winner, regardless of the amount you pay now, you will make good returns on that. The challenge is to pick the winner.
The same is true for e-commerce. Whether you invested in Alibaba in 2010, 2011, 2012 or even 2014—at any stage you invested in, you would make a subsequent higher return now. The shift towards online retail is happening and that trend is not going away—question is, can you pick the winners. No matter what you pay today, in a 10-year horizon, the leading e-commerce player in India, whoever the No.1 player is—whatever you pay today will be justified.
In Grabtaxi, we are not directly invested—we are invested through (our subsidiary) Vertex. We are invested in China-based taxi app Didi Dache. Recently, China’s two leading taxi apps merged—the other being Kuaidi Dache, backed by Alibaba Group Holding Ltd, who had been our key competitor. We also invested in the No.2 online video company in China sometime back, and they have merged with the No.1 player and is today called Youku–Tudou—it is multi-billion dollar market cap company. So if you believe online video is a theme that will succeed—you can debate at different points on the time of the valuation—but if you are with the winner in that space, you should do fine. For the winner, the valuation will be okay, but for a lot of others, it may not be okay.
You also oversee India for Temasek. What is your India investment strategy and how do you see it when compared with your other key markets?
Today, in that context of valuations globally, India in particular is very attractive for us. Relative to the US, China and Europe, which are much bigger markets for us, we will never do as much there (in India)—but we’ve stepped up activity over the last two years. In size, most of the investments in India are smaller when compared with what we do in the US, Europe and China because of the size of the opportunities. A benefit we have is the flexibility in our investment stance—we can do public markets and private markets. In 2013, when India was melting post the taper tantrums, we saw blue-chip companies that were listed at very attractive valuations, and we said that regardless of what happens to the economy, these look very attractive. We invested quite actively in 2013 and almost entirely in the public markets. But in the last 12 months, we’ve done about 10 investments in India, and most of them have been in the private market. If you look at sectors, one is the area of financials because that is a proxy for the general overall economy, but otherwise it has been consumer, technology, healthcare and pharma. Just in the last six months, we have invested in Intas Pharmaceuticals Ltd (it acquired a 10.6% stake in the privately held pharmaceutical firm based in Ahmedabad); before that we invested in Snapdeal, we recently invested in Manthan; in the consumer side we did Bajaj Corp. Ltd and Devyani International (operator of KFC, Pizza Hut and Costa Coffee chains in India). We invested in SVB India Finance Pvt. Ltd and for hospitals, we invested in Medanta. These are not mega transactions—there are a lot of good deals and our focus has been to do the good deals.
I see ourselves as unique because the private equity guys won’t do the public markets and the public market investors won’t do the other deals we do. So, even in the past, deals we have done, like buying a stake in Godrej Consumer Products Ltd—some of the deal sizes have been disclosed—they are between $100-150 million. That ends up being the sweet spot. If we find a very exciting $500 million (deal), we will love to do it—but at the same time, if we see a $50 million deal, we are happy to take that.
You are an active investor in the Indian markets—last year, it was among the best performing markets. Are Indian markets expensive at current levels? Will you continue to buy at these levels?
At the top-down level, valuations are expensive whether it is the US, Europe, China or India. From our perspective, we are very much bottom-up investors, and we will look at our themes and what is attractive to us, and we also look at value relative to growth opportunities. Many estimates say the Sensex earnings will grow between 15-18% over the next two years. If that pans out, that has one implication on the current valuation, and if it grows at 25%, it is a very different valuation. Yes, multiples are much higher now, and it becomes more difficult for public market investing. We made public market investments last year, but it was much fewer than what we made in 2013. If we believe that the trends are positive from a three- to five-year perspective, we are then less worried about the quarterly mark-to-market. Aggregate market valuations matter much less to us. We still find opportunities on a bottom-up basis that are attractive, which is why over the last 12 months, most of our investments are private or negotiated deals, compared with 2013 when most of our investments were in the public market.
Your take on the budget.
Two things we were looking at for in the budget—kick-starting public expenditure, and, secondly, affirmation on the GST (goods and services tax) next year, which was also there. The third was a continued commitment towards fiscal consolidation. Beyond that, directionally, the commitment to the ongoing reform process. More important for us is to see the ongoing reforms are continued. We are looking to see if the land acquisition bill will be passed in Parliament in the current session. Implementation is where India has faced obstacles in the past. Budget has been good in laying down the vision—most corporates I’ve spoken to have been positive about it. When you have that confidence, you see more investment. The budget showed a clear path on what the tax regime will be in the next few yours.
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