’India has produced the best returns in the last few years, and in real estate it is near the top’

MUMBAI: India has consistently delivered the best returns for Blackstone Group Lp in the past few years and will remain among the top five markets globally for the world’s largest private equity (PE) and alternative assets manager. In an interview, Jonathan Gray, president and chief operating officer of Blackstone, comments on the themes that will drive investment activity in the coming years. Edited excerpts:

Let’s start with the India story. How do you see it develop over the next couple of years?

India will soon be the most populous country in the world, with an average age of only 29. About 125 million people speak English and the number of engineers graduating each year is five times compared to the US. What’s getting us encouraged though is that the government has taken on a bunch of positive steps to facilitate and accelerate growth. The insolvency reform, GST (goods and services tax) and the government’s focus on getting inflation down from 10% to 2%, which has helped more FDI to come in. All this, and increasing infrastructure spend, is creating the monetary, legal and physical infrastructure to allow this incredible pool of talent to reach its potential. We see India in the early stages of a very long-term growth cycle, and I think a lot of the pro-growth oriented policies will affect this in a big way.

PE funds tend to take a very long-term view but is regulatory risk something that concerns you about India?

In all places, it’s a concern, including the US and Europe, but as I said a lot of steps have been taken to provide consistency and clarity. In the real estate area, they enacted this REIT (real estate investment trust) legislation, which we think will be a big boon to the real estate sector.

It should lead to much more construction and job growth by allowing foreign capital to come in. That wasn’t there before. They worked with us and others to make a structure that looks like what’s there in other countries and the progress is various areas is quite positive. We would love more simplicity, more consistency. It is a more stable environment.

You have recently forayed into credit business in India. How is that looking like?

I think the new Indian insolvency legislation is really important. Because if a borrower didn’t repay loans earlier there was no way to resolve it. As a result of this, a significant amount of NPLS (non-performing loans) is going to get resolved. We think by providing capital and expertise, we can clean up some of the loans in this system, which will free up capital for more lending and credit creation.

So, we are doing this with our third pool of capital, beyond PE and real estate. And we do it throughout Europe and China. It will be really positive for the ecosystem.

What kind of large buyout opportunities are you looking for in India?

We’ve been focused in the PE space so far, and we really like the IT services space, because there’s so much talent, it’s really cost competitive and we have had some success here. We’re doing more and more in the consumer space, because we see India is consuming more. We just reached an agreement to acquire Aadhar Housing Finance, which I think is a terrific opportunity.

We can deleverage the business and make it grow faster. Consumer sector, consumer finance, automotives have been areas of focus, with the Comstar transaction. So, there are two themes, export oriented, which is IT, the automotives, and capturing the consumer growth. And interestingly what we have done in real estate is a mirror image of this.

As investors, if you find a couple of things to believe, you can just go all in, in those and that’s what they have done here. In our PE portfolio, India has produced the best returns in the last few years, and in real estate it is near the top.