News analysis: setting a succession plan standard

It’s never a good thing when the founder of a private equity firm decides to leave. It’s even less great when he is the only remaining founder at the firm and has a name as weighty and resonant as ChrysCapital’s Ashish Dhawan.

Dhawan, who co-founded ChrysCapital alongside Raj Kondur in April 1999, announced this week that he would be leaving the firm to concentrate on his philanthropic interests. Also leaving is managing director Brahmal Vasudevan, who plans to return to his home country of Malaysia to focus on investment in Southeast Asia and India.

To many, Dhawan was the backbone of ChrysCapital, which, both in terms of longevity and track record, stands out as one of India’s few private equity heavyweights. But notable in a country – and region – where senior level management churn is commonplace is the approach ChrysCapital is taking to mitigate the impact of the loss on the firm’s activities.

Though Dhawan will not actually leave until July 2012 (and Vasudevan not until August of this year), discussions around the two departures began last August, Sanjiv Kaul, one of six remaining managers at the firm told PE Asia.

“It took us six months to define a management transition, which was to be based on collective leadership and equal partnership,” he added.

The succession plan itself is clear: Dhawan will remain at the helm for a further 16 months. After he has left, he will remain involved in any investments he has worked on from existing funds, including the current fund, ChrysCapital’s fifth. From the point of his departure, ChrysCapital’s six remaining managing directors will split responsibilities – and equity – at the firm.

With is predilection for PIPE investments, ChrysCapital has attracted its fair share of criticism over the years for its investment activities. However, in governance terms at least, it seems to be setting the standard for other firms to follow.

A prior example of this came in June last year when the firm made the decision to hand back $300 million of its $1.25 billion Fund V to investors, due to the limited number of investment opportunities it saw in the prevailing market. 

“It’s a proactive step,” Kaul said at the time, noting that ChrysCapital had been providing its limited partners with an IRR of more than 15 percent every year, but felt it would be difficult to achieve a similar rate of return as valuations were so high.

Of course, there is still a danger that despite its best efforts, the departure of Ashish Dhawan will deal the firm a blow – crunch time will come when the remaining management approaches LPs to re-up with Fund VI. But if that does happen, it certainly won’t be because LPs felt the firm lacked rigour and clarity in its institutional processes – in fact, it has raised the bar.