After studying law I vectored towards journalism by accident and it's the only job I've done since. It's a job that has taken me on a private jet to Jaisalmer - where I wrote India's first feature on fractional ownership of business jets - to the badlands of west UP where India's sugar economy is inextricably now tied to politics. I'm a big fan of new business models and crafty entrepreneurs. Fortunately for me, there are plenty of those in Asia at the moment.
Education: Harvard Business School
Career: Was part of the founding team of CB Richard Ellis in India; moved to Hong Kong with CBRE; founded Xander in 2005
In August 2005, Siddharth (Sid) Yog, a Class of 2004 Harvard Business School graduate, managed to raise $120 million for his realty fund. It looked like an achievement then. But, in hindsight, many young kids raised a lot of money to invest in India because India was hot.
Six months after the government opened up Indian real estate to foreign investment in 2005, 160 funds set up shop. As they went about quickly deploying their money, there was too much money chasing very few quality projects. The majority of the funds then shut shop, leaving behind irate investors who haven’t been able to recover their principal. It is in this context that the magnitude of Sid Yog’s achievements can be understood.
Xander, the fund Yog founded eight years ago, rubs shoulders with the likes of HDFC, Kotak and Indiareit as among the few who have returned investors’ money: Yog has already returned more than the $120 million he had raised. The good part is that the mark-to-market value of the investments [their current value] Xander hasn’t sold yet is $113 million, according to Cambridge Research Associates, an independent Boston-based research firm. That means he has almost doubled investors’ money. At these values, the internal rate of return (IRR)—benchmark to judge the attractiveness of an investment—of Xander’s portfolio is 41 percent. (The 2005 benchmark for global real estate funds, according to Cambridge Associates, has returned minus 3 percent.)
Admittedly, it will be hard maintaining this performance over other funds. Still, what makes this a standout performance is that it is the sole foreign realty fund from about 160 set up in India that hasn’t lost its shirt. Meanwhile, its capital under management has swelled to $2 billion, making it by far the largest realty fund in the country.
So how did the unheralded Yog manage to pull it off? For starters, he didn’t jump the gun. For most part of 2005 and 2006, Yog just did not invest.
“Property prices were just too high and we couldn’t see value in any single transaction,” he says. He waited and in May 2006, Xander put money in Maker Maxity, a business park in Mumbai’s Bandra-Kurla business district. Xander picked up a 20 percent stake. Six years on, at Rs 400 to Rs 425 per square foot, the office block is rumoured to have the highest rentals in Mumbai. People with direct knowledge say Xander’s investment has more than doubled.
Those who know Yog and the firm say its success lies in the fact that it’s never been swayed by the hype of rising real estate prices in Indian metros. “We do not invest based on growth projections. We invest based on the here and now, and in the real estate sphere we invest on the basis of how the real estate is going to perform,” says Yog.
Along the way, Xander also made some contrarian bets. For instance, it has invested in hotels, something most realty funds shy away from as it can take as much as seven years to exit such an investment. According to media reports, Xander was one of the bidders for Goldman Sachs’ stake in the Four Seasons Hotel in Bangalore.
And the firm is even more patient with its new venture, Virtuous Retail, in the retail space. That’s a bet that could take well over a decade to pan out. Some in the industry are questioning Yog’s wisdom on the bet. “Retail is a tough nut to crack and I’m not sure how this one will work out for Xander,” says an industry tracker.
TAKING A CHANCE
As Yog concedes, most interesting things in life happen by chance. It was in March 2005 that he found himself in India for getting a visa. Up until then, Yog had spent nine years in the real estate business. He’d cut his teeth at Richard Ellis (as CBRE was then called) and built their consulting and valuation practice in India. Later, he moved to Hong Kong to set up the same business in Asia. Anshuman Magazine, chief executive of CBRE’s Indian operations, re-members Yog as extremely bright but also very aggressive. “That certainly rubbed some people the wrong way, but one couldn’t fault him with his work,” he says.
In 2002, Yog found himself at Harvard Business School and a bit out of place. He was the only one with a real estate background and was struggling to find peers. That’s when he walked into the office of Arthur I Segel, the Poorvu Family Professor of Management Practice in the Finance Department of HBS. It was a meeting that would eventually change the course of Yog’s life.
Segel had spent his life running a real estate firm and the two got talking. Before long, Yog had done a bunch of research for him and the two had worked on a case study together. “I have had the privilege to teach over 3,000 students and Siddharth is one of the smartest I have ever had,” says Segel.
In March 2005, Segel was willing to put his money where his mouth is. He had been approached by Lord Jacob Rothschild (a top investment banker and member of the Rothschild family) to invest money in India. But Segel suggested that they should help Yog start a fund instead.
“At first I thought Siddharth, at age 32, was too young to manage other people’s money, but then I realised that was the age I started at,” he says with a guffaw. And with that, Xander was born. It had among its initial backers some of the world’s savviest investors—besides Rothschild, it had the Getty family and Baupost, a hedge fund run by the legendary investor Seth Klarman.
Yog got down to work in March itself, aiming to create a firm that was global in outlook yet entrepreneurial in nature (something he’d found lacking at Bain, where he was working immediately after graduating from Harvard). Most importantly, it had to have a track record of consistent returns over a long period of time, says Rohan Sikri, a partner at Xander who worked with Yog during his CBRE days.
From their initial days, Yog and Sikri, with their years in the industry, knew that if they were to succeed, research would play a key role. Over the years, it’s Xander’s research that has differentiated it from the rest.
OWN YOUR INSIGHT