Private Equity and Edtech - what do they have in common and why they need to be built for anti-scale?
by Naveen February 7, 2023
We made a significant change in the portfolio construct at Itus, with a complete exit of UTI AMC. This was done in April 2022. The PL across all clients for the investment in UTI AMC was -6.1% and the weighted average sale price across all clients was at 821.
Background of the investment
We had invested in UTI AMC on the back of all 3 levers that we look for in a business in favour of the investment
Position sizing the investment
UTI AMC was one of the funds highest exposure investment in the portfolio. Why did we size the position to 10% across clients?
Reason to exit the investment fully
I have often highlighted that getting married to your investments is the biggest nemesis of a manager or investor. While I continue to believe that our investment thesis was sound, our exit was predicated on the thesis changing – when our core investment thesis changes, we would exit a position.
Over the last 2 quarters, the AMC business has seen a margin compression on the equity book ( this has been an industry-wide trend). While this we believe will normalize over time, we had expected the management to be prudent on the cost during times where there was significant yield pressure. However, in the 4QFY22 earnings, the expense of the AMC in the quarter (and the year) continued to increase which was contrary to the thesis we had and our discussions with the management.
(To put this in perspective, UTI AMC has an average cost per employee at 26.1 L / annum which continues to be 3x the industry leader).
This was an extremely important lever to our growth on the business, and we no longer were comfortable with the investment and the management narrative on the execution. We exited the position completely at a -6.1% loss on the position which we believe was prudent risk management.
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