By Bhuma Shrivastava and Klaus Wille
When Nandita Agarwal Parker started her India hedge fund a decade ago, all investors in the U.S. wanted to talk about were her children and her husband.
“When I went to fund raise in 2004, a fund-of-funds guy told me ‘honey, what you need is a sugar daddy,’” Parker, 49, said in an interview at her colonial-style bungalow, which doubles as the office of Karma Capital Management LLC, on the outskirts of New Delhi. “Rather than discussing strategy, investors would question the ages of my children.”
Parker beat the odds to now run the best-performing India-focused hedge fund over 10 years with investors mainly from the U.S. She plans to boost assets in her two funds, including the top ranking $70 million Karma STAR, sevenfold to $500 million in the next three years, betting on a “multiyear” bull run in the nation’s equities, spurred by hopes of economic revival under Prime Minister Narendra Modi.
Karma STAR, which bets on falling and rising stock prices, has had an annualized return of 15.58 percent over the past decade as of September, according to Eurekahedge Pte. Hedge funds investing in India have returned 29 percent this year, according to the Singapore-based data provider.
“Success like those of Parker will encourage more women to go into the field,” New York-based Susan Stautberg, who co-founded Women Corporate Directors, a global organization that pitches for and mentors women for top corporate management and board roles, said in an e-mail. “It may take a while for men to invest if they run the funds. So Parker’s success is a step towards progress.”
Loving Maths
Progress is already under way in India where women head two of the biggest banks: Arundhati Bhattacharya as chairman of the State Bank of India (SBIN), the country’s largest lender, and Chanda Kochhar, chief executive officer of ICICI Bank Ltd., the largest private lender by assets.
Parker, who was born into a family of Zamindars, or wealthy landowners in Delhi, founded Karma Capital in 2003 and rejected the tradition of women giving up their freedom to marry wealthy businessmen within their caste.
“That was not for me. I loved math and I had a head for numbers,” she said. “Even before I went to business school, I knew I wanted to be on Wall Street.”
She graduated in 1990 with an MBA in finance from the business school at the College of William & Mary in Virginia where she met her husband and Karma’s chief operating officer, Douglas Parker.
With Wall Street at the peak of the recession, it took her a year to get the job she wanted. She eventually landed a position as a U.S. media and entertainment analyst at Gerard Klauer Mattison & Co. in New York, before going on to work as India market strategist at Bear Stearns Cos. She also held roles at American Century Asset Management, S.A.C. International Equities LLC and Aeneas Capital Management LP.
Understanding India
In 2003, Parker — whose great grandfather was chief engineer of Delhi and helped British architect Edwin Lutyens build pre-independence landmark buildings such as the Rashtrapati Bhavan, now the seat of power for the Indian government — had just returned to the U.S. from a visit to her native country, where she met with about a dozen companies, when Tom Grossman, a colleague at S.A.C. and Aeneas Capital, urged her to start an India-focused fund.
“I came away thinking that for the first time all engines were on Go in India,” she said. “It was so radical because there was no macroeconomic report to back it. Just the microeconomics telling me that the environment to make money in Indian equities was ripe.”
‘Best Ideas’
Parker worked hard to understand the path of a stock and managed volatility along the way, Grossman said.
“This is what separated her from others,” Grossman, who manages $150 million as founder of Union Avenue Advisors LP and was one of the first investors in Parker’s fund, said in a telephone interview from New York. “This matters especially in India where volatility is extremely high due to non-fundamental forces such as politics affecting prices in the short term.”
Grossman, whom Parker calls her mentor, allowed her to work flexible hours when her son was born.
“He said ‘just give me your best ideas, doesn’t matter if you work from home or come into office,’” said Parker, who recalls going into client meetings without having gone into the office for five days. “His style helped me believe I really could do it all,” said the mother of a 16-year-old son and 14-year-old daughter.
Identifying Trends
Convincing potential investors didn’t come easy early on. “It was frustrating to see guys coming out of private-equity firms who raised $500 million or more with no track record of investing in India. And there I was struggling to raise $100 million.”
That is changing. The assets in her two funds have already doubled this year and Parker now plans to approach Japanese investors flush with cash in the wake of Prime Minister Shinzo Abe’s economic stimuli. Karma Capital also manages the smaller Karma SELECT, a long-only equity strategy with $5 million.
Allocations come from investors including family offices and funds-of-funds, and some from Silicon Valley, according to Parker.
“I am a big fan of Nandita,” Toby Coppel, London-based co-founder of early-stage-venture-capital firm Mosaic Ventures who has been an investor since 2005, said in an e-mail. “She is extremely perceptive at identifying long-term trends early and very patient while waiting for these trends to play out.”
Strong Returns
India-focused hedge funds are set to have the strongest returns in five years this year after Modi, who won the largest election victory since 1984 in May, pledged to restore economic growth, curb inflation and the budget deficit, as well as revive stalled infrastructure projects and cut red tape in Asia’s third-largest economy.
Hedge funds with mandates to invest in the country are seeing a pick up in assets under management that more than halved to $2.3 billion after the global financial crisis. Managers oversaw $2.8 billion as of the end of August, about half the $5.3 billion at the end of 2007.
‘Unloved Stocks’
Karma picks depreciated stocks and holds them until they start delivering returns, in some cases for years. At times, the firm engages with the management to help improve performance, corporate governance and, eventually, stock value.
“We look for unloved stocks and analyze why they are sitting at that price,” she said. “Then we look into what will cause a change and if the management understands what it needs to do to derive a higher valuation.”
Shoemaker Bata India Ltd. (BATA) was a stock Karma bought at below 100 rupees a share in 2004 and exited at about 750 rupees a share in 2012. PVR Ltd. (PVRL), a multiplex theater operator which it held from 2010 until recently, has gained 350 percent over the four-year period.
In the second half of 2013, Karma started buying Indian public sector banks such as State Bank of India and Indian Bank. (INBK) “We bought them despite everyone saying absolutely don’t touch them,” she said. SBI has risen 60 percent since the end September last year, while Indian Bank, a state-run lender, has more than doubled.
Media and entertainment is Parker’s favorite sector currently because she believes it “is on the cusp of change due to digitization.”
A larger fund would mean increasing her portfolio to about 45 stock picks from 30 to 35 stock picks now, she said.
Gender Bias
Karma STAR is fourth among hedge funds investing in India over a five-year period, with annualized returns of 10.37 percent, and also fourth over three years with 14.50 percent as of September, according to data from Eurekahedge.
There are about 125 female-run funds globally, accounting for about $100 billion in assets, or 3.6 percent of the total hedge-fund industry, according to a June report by Kyria Capital Management LP, which invests in funds run by women.
That’s an improvement from a decade ago when Parker was fielding questions about babies instead of stock picking. She says there are still strides to be made to attract more women to the industry and more money into women-run funds.
“It is somewhat better, but I don’t think it’s hugely different,” she said. “The gender bias in fundraising is an on-going bias. It is not history.”
(Bloomberg)
