Nalanda
Thursday, April 25, 2024

Passively active style of investing

Nalanda invests primarily in those situations where it can be an active partner with the management team. Nalanda needs to be convinced before making the investment that the management team of the portfolio company is open minded and values and appreciates discussion and debate. The style of Nalanda’s interaction with the portfolio company management teams is not “activist”, but “active”. We call it a “passively active” style of investing.

Nalanda’s focus is not to make a third rate company a first rate one (it does not have the skills to do so), but to help a great company become even better. And this is possible not because the professionals at Nalanda Capital are “smarter” than the entrepreneurs (they aren’t), but because they bring a different perspective to the table. The Nalanda Capital team has observed many Indian companies across a wide range of industries deal with many fundamental issues over a long period of time. They seek to bring this perspective into their discussions with the management teams of the portfolio companies. The experience of the investment management team has shown that Indian entrepreneurs value feedback and criticism if it is done in a constructive and collegial manner.

Nalanda does not seek to interfere with the management teams of the portfolio companies, but simply seeks to intervene selectively. The approach aims to add value in a few areas every year, and does not involve giving daily or weekly advice to the management team. The interaction is programmed (e.g. once every few weeks), and is not event-based.

Nalanda has added value in the following areas: strategy (whether a portfolio company should trim the number of its brands, whether the portfolio company should launch a new business), mergers and acquisitions (whether a portfolio company should be acquiring overseas companies, whether a portfolio company should sell or shut down its non-performing business), corporate structure (should the company demerge its disparate businesses or create a subsidiary), financial structure (whether a portfolio company should be raising debt instead of equity) and organization (whether the portfolio company needs a Chief Operating Officer, or whether its Chief Financial Officer is serving the function of a Chief Accountant) – i.e. in all the areas that could help the management team of a portfolio company create greater value.

Overall, Nalanda does not invest unless it is convinced that the management team is clean, outstanding, and is open to external ideas, and discussion and debate.