When Gautam Prakash wanted to start his own investment firm it made sense — both in his heritage and professional background — to target India. However, to survive the financial crisis of 2008, he had to take an innovative approach to fund investing, particularly in India — and his moves have paid off greatly. Not only has his firm Monsoon Capital weathered the financial storm, its India hedge fund — by all accounts — is the top performing hedge fund in India.
Founded in 2004, Monsoon Capital is a minority owned alternative asset manager focused on emerging markets, primarily Asia and India. The firm manages absolute return, long-only, and real estate investment strategies. Monsoon Capital, together with its India-based advisory team (Suyash Advisors), maintains offices in Washington, D.C., Mumbai, Bangalore and Singapore.
The firm manages more than $350 million in assets with its Monsoon India Opportunity Fund and Monsoon Asia-Pacific Systematic Program the current focal points. The India hedge fund has $35 million in assets and the Asia hedge fund has over $100 million in assets.
The India fund and the Asia fund use absolute return investment strategies and Prakash, Monsoon's senior managing director, credits this approach as saving his firm during the financial storm several years ago. The firm has a close real estate fund of about $180 million in assets and has a long-only fund with about $75 million in assets.
The 42-year-old Prakash, who spent close to a decade with the Cambridge, Mass.-based Bessemer Venture Partners from the early 1990s through the turn of the century and now lives in Chevy Chase, Md., says that survival was just about rethinking how his firm did business, regardless of what others were doing. "Ultimately, it is about reinventing — that is what you have to do," Prakash said.
In the early days of Monsoon, though, reinventing was far from necessary.
"We launched Monsoon Capital with the idea of launching and building and world-class alternative assets investment firm," Prakash said. "We started with a long-only, small cap, private equity style India fund."
From December 2004 to January 2008, this fund went from $4.9 million to $1.6 billion.
"We basically quintupled investors' capital," said Prakash. "Then the bottom just fell out. It was a daily punch in the stomach for about 15 months."
The fund eventually fell to $110 million.
While fighting off the death blows, Prakash says it was pretty obvious the firm needed to diversify. The first thing it did was launch a $120 million real estate fund — an eight year fund.
"But then we still had to deal with this brutal decline • from $1.6 billion down to a $110 million • that was just punishing to the long-only investors and the general partners," Prakash said. "I think what we realized coming out of that is that we needed to — even more quickly — drive the focus of the firm to these other areas that are not just relaying on the stock markets going up."
Hedge funds were an immediate answer. "They actually do quite well when the markets go down and when the market goes up — they are the classic hedge funds," said Prakash.
However, looking specifically at India, Prakash said he say that in 2009 all the funds in India were still long-only or long-biased and betting that the markets would go up. Though, at the time as today, Prakash expects India to continue to grow and be an economic power he still believes that India's path forward will not always be a straight-line rise. And that particularly with stock markets there will be periods when India does well and periods when India does not do well, even if the economy on the whole continues to grow.
"There are plenty of occasions when people love to hate that market," he said. "Investors go through these phases when they love a market or hate a market and it often has nothing to do with the fundamentals of that market."
This is the reason why the firm launched its Monsoon India Opportunity Fund as an absolute return fund and not a long-only fund. This strategy means the fund can also make money when markets fall versus long-only funds that rely on making money when markets go up.
Prakash is surprised that most funds in India are still long-driven. For Monsoon, he said there was no other way to go. "I think if we were the long-only fund we would have closed by now," he said.
Monsoon's India fund has showcased four times the return on the market with less than half the volatility, Prakash points out. Over the last 30 months the India fund is up about 14 percent annualized, while the India market is up 3 percent annualized. The Asia fund has also showcased strong returns.
Clearly the strategies with the two new funds are paying off for Monsoon.
"It is sort of giving us a second lease on life," said Prakash. "A year from now I would expect these two funds to be about 75 percent of our capital.
"This really paves the way for the future, this is what will propel us forward — these two funds," he added.
Emerging from what he calls a "brutal period" for investment firms Prakash likes what he sees on the horizon for Monsoon.
"We are both well positioned and we are optimistic about our own future at Monsoon," he said. "We are at the early innings of this game of investing ... I plan on growing and developing Monsoon for several more decades ... so we know there is a long road ahead."
And Prakash doesn't talk a good game, he and Monsoon's other partners put there money where their mouths are. "We put a lot of our own capital into those two funds," he said. "If we are not willing to bet very big ourselves, why should anyone else bet on us?"
Prior to launching Monsoon Capital in 2004, Prakash was an advisor to ChrysCapital, a billion-dollar private equity fund based in New Delhi. From 1993 to 2001, he was a venture capitalist at Bessemer Venture Partners, one of the country's oldest venture capital firms. Prior to joining Bessemer Venture Partners, he worked as a management consultant for McKinsey & Co. in New York from 1991 to 1993. He has a bachelor's degree in molecular biophysics and biochemistry with distinction in economics from Yale University.
If Prakash has learned anything from the past, though, he will be open to do whatever it takes to keep Monsoon going, even if it is investment strategies that no one else is doing.
"It has been a tremendous adventure and we have really focused on how to keep this firm at the top of its game and what sort of things do we have to do in order to do that," he said. "We need to always be adaptive and not get too rigid in how we think."