Ex-Tata executives start fund to spur change at Indian companies

Company News

Some ex-Tata group executives have teamed up with a veteran investor to seek to bring change at Indian companies, in a rare attempt to influence management in a country where shareholder activism has largely failed to take hold.

Former Tata employees including Mukund Rajan and Govind Sankaranarayanan have partnered with Ajit Dayal, the founder of mutual fund firm Quantum Advisors, to set up a fund to invest in smaller stocks with a view to working with managements to help them improve in areas such as corporate governance.

The team expects to get regulatory approval for the tentatively named Active Engagement Fund by May and seeks to raise and invest $1 billion in the next three years, Sankaranarayan said in an interview in Mumbai. The fund expects to begin investing from September.

Sankaranarayan, who spent more than two decades at Tata Group, says the fund deliberately shunned the activist moniker and positioned itself as an environmental, social and governance vehicle because aggressive activism just wouldn’t succeed in India. The reason, he says, is that founding shareholders typically tend to own as much as 40 percent of companies. Instead, the fund will invest in smaller companies where owners are more likely to be open to change, he said.

“Unlike the U.S., activism is less likely to work in India as founders at most companies are very influential because of the substantial stakes they hold,” Sankaranarayan said. “We need to engage with the founders in a persuasive, meaningful way to drive our ESG agenda.”

 Corporate India is grappling with a range of governance issues, everything from business relationships with related parties to poor disclosures on debt.