When Sunil Rohokale first visited the ASK Group’s office at Band Box House in Worli, Mumbai, he only had a faint idea about the financial services company and the men behind it. It was April 2008 and he had been invited for a meeting by Asit Koticha, co-founder of the ASK Group and one of the most successful value investors in equity markets.
Rohokale, who was serving as the MD and CEO of ICICI Home Finance at the time, had no prior experience in the capital markets, whereas the ASK Group had earned a name as an institutional broking firm. The company was known for entering into a joint venture with US financial services firm Raymond James Financial in 1993.
The JV ended in 2007 following ASK’s buyout of Raymond James’s stake. After exiting the broking business, ASK diversified into wealth advisory services. At the same time, Koticha harboured ambitions of venturing into real estate private equity—an asset class consisting of equity or debt investments in property.
Koticha had done his research on Rohokale and the banker’s reputation for building a Rs 83,000-crore loan book at ICICI preceded the meeting. Koticha made him an offer to come on board and lead ASK’s forays into real estate PE.
“Changing jobs was a big thing. It was not easy for a conservative Maharashtrian like me, working with a big mortgage bank, to quit and join ASK. But I joined and created an investment philosophy which worked,” recalls Rohokale.
Says an anchor investor, “I was very impressed with their investment proposal and I knew that these were not like other funds. They understood on-the-ground investing in the real estate business. I have been the first investor in their first fund and later on invested in other funds as well.”
Most of the high-profile investors end up being part of the investment committee of the real estate funds. In ASK’s first fund, there were four investors in the committee and three members from the company. In the second, the number of investors on the committee increased to six, while in the third, there were 10 investors and four ASK members. “These investors are invited to the committee for better governance. They have specialised knowledge with skin in the game. This aligns our interest with theirs,” says Bhagat.
Bringing investors on board committees becomes important because ASK’s funds actively invest in equity. Most of the money that has been raised by real estate funds has been for debt financing. PE funds usually focussed on debt because developers were not getting finance and the returns for lenders were high. On an average, debt funds have been able to give a return of around 18 percent every year for the last six years.
ASK was the only fund that went in and raised equity money. “Equity gives the ability to not only control the investment but also the ability to select a good partner. We consider ourselves to be active investors where we want to be in control of the project. We put in 70 percent of the money in a project and take the entire risk management aspect of the project in our hands,” explains Rohokale.
He wants to give growth capital and not become a lender and sit on the fence, which is the common model for most funds. And this is what ASK Property Investment Advisors has set out to change.
Besides, fund managers never focussed on the risks. Rohokale and Bhagat like to be extra careful and prefer to be known for managing risk than generating returns. This closely resembles the investment philosophy of legendary investor Warren Buffett and his partner Charlie Munger, whose principle of margin of safety is based on looking for opportunities where the market price is way below the intrinsic value of an investment. This allows fund managers to provide for errors in their judgment if things go wrong.
Being active also means that ASK has to be involved in every aspect of a realty project—from the buying of land to completion. Rohokale feels that he is providing long-term capital to developers, so it makes sense that he works with the developer from very early stages of a project.
“We deal with PE funds all the time but ASK fund managers are different. They enter early, sometimes even at the land-buying stage. They look at the future of the project and they have the expertise to understand issues developers face on a day-to-day basis. Importantly, they work more on trust than paper work,” says Pratik Patel, director of Rajesh Lifescape that has taken equity funding from ASK twice. Patel is a third-generation real estate entrepreneur with a long and successful track record on delivering projects.
One of the checklists on Bhagat’s and Rohokale’s investment philosophy is whether the developer has taken a loan from ICICI Bank or HDFC in the recent past. This establishes the credibility of the developer. In fact, they were the first lenders to Paranjape Developers and Mantri Developers. The duo have identified 11 developers who meet their strict standards. These developers are known to deliver projects on time, are quality-conscious and have an impeccable track record.
But it is becoming increasingly difficult to generate returns in the real estate market due to oversupply and unaffordable prices. Rohokale and Bhagat feel that this is a good opportunity as there will be quality developers who will be looking for long-term equity finance. “For us, it is like value investing… getting good projects way below their intrinsic value,” says Rohokale.
This is exactly the kind of market they anticipated while sketching their investment philosophy and they are right on course.