In September 1999, when Warburg Pincus started buying into what was then Bharti Tele-Ventures, very few in India had heard about the blue-blooded private equity firm. Even fewer could prophesise the growth that Bharti Airtel would go on to enjoy. As it turned out, with that deal Warburg Pincus went on to make history. Pulak Prasad’s spectacular exit became the talk of the town, from Mumbai to New York. It is a success few private equity players have been able to replicate, including Warburg itself. 

What made private equity funds succeed greatly in India in the last decade and why they are in serious pain today is a no-brainer. The investing landscape changed dramatically post the 2003 bull market, and the avalanche of funds meant there were too many managers chasing too few good deals. Barring the smartest, most fund managers either ended up overpaying for a deal or compromising on the quality of investment. The final result in both cases was value erosion once the bull market came to an abrupt halt. 

But before the bull market had run its course, a whole host of fund managers had got sucked into companies that sold hope. Part of Warburg’s woes also arose from the same — buying into companies that relied on a perfect future. Ironically, Bharti, Warburg’s best investment, too, was one such company — Sunil Mittal was a novice in the telecom business and the biggest pull was the potential for mobile telephony in a country of more than a billion. Warburg’s experience, then, is a lesson on how no fund manager can hope to replicate his own success by using the same strategy. Granted, the underlying principles for evaluating a business may be the same, but the overlay of market conditions and even competition from peers may require the manager to act differently under varying circumstances. Though Warburg Pincus did not participate in our story, it surely must be re-assessing its strategy.