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The Money Hunt: Ironwood Capital Partners Taps Overseas Investors For Sri Lanka Private Equity Fund

The Money Hunt is a series about fundraising, focused largely on newly-formed private equity firms.

Sri Lanka’s Ironwood Capital Partners has raised $30 million for its first private equity vehicle, intended for investments in small and midsize enterprises in the growing South Asian nation.

Managing Partner Hiran Embuldeniya said the firm seeks to take advantage of economic growth in the country after years of civil war between the majority Sinhalese and Tamil minority, which ended in 2009. Sri Lanka’s real gross domestic product expanded by 7.3% in 2013, compared with 6.3% in 2012, driven by its services, manufacturing and construction industries, according to the International Monetary Fund.

Ironwood, named after the Sri Lankan national tree, the Ceylon Ironwood, said in a news release that it raised the capital primarily from overseas investors. The firm isn’t related to Ironwood Capital, an Avon, Conn., firm focused on providing mezzanine financing and investments in Connecticut companies.

Mr. Embuldeniya, whose experience includes investment banking and strategy consulting stints at Goldman Sachs Group Inc., McKinsey & Co. and York Street, said the fund’s backers were all individuals, given the difficulty of raising a first-time emerging market fund from institutional investors, but the firm intended to look further afield in future fundraising efforts.

Sri Lankan boutique investment bank York Street Partners supported the firm in raising the fund, which will focus on investing $3 million to $7 million in Sri Lankan businesses across a range of sectors and stages.

Mr. Embuldeniya said the fund was formed in part because of a dearth of funding sources for companies in the country.

“We’re at this trajectory in this stage of development and we don’t have a single private equity fund devoted to the country,” he said.

Indeed, private equity has taken only tentative steps into Sri Lanka. Through the first half, there were only five deals struck in the country over the past five years, according to data from the Emerging Markets Private Equity Association. In one of the larger deals in recent years, TPG Capital agreed to invest $117 million for a majority stake in Sri Lanka’s Union Bank of Colombo PLC in August.

The members of Ironwood, which also include Steven Enderby, Mayank Parekh and Chanaka Wickramasuriya, came together about a year ago to begin fundraising, said Mr. Embuldeniya, but the firm formally incorporated in the past month.

Mr. Enderby previously was a partner at emerging markets investor Actis; Mr. Parekh’s experience includes stints at Singapore private equity firm Southern Capital Group and McKinsey & Co.; and Mr. Wickramasuriya previously was a partner at Aureos Capital, now part of Dubai’s Abraaj Group.

The firm has yet to do any deals, said Mr. Embuldeniya, but is actively looking at two or three at the moment.

One area of particular interest is the consumer sector. Mr. Embuldeniya said the country had around 21 million people, similar to that of Australia, and rapidly increasing income levels but a relatively low penetration of consumer products.

Other areas of interest include export-oriented manufacturing, tourism and logistics. The government is focused on Sri Lanka becoming a South Asian logistics hub and while Ironwood is less interested in building ports per se, Mr. Embuldeniya said his firm would like to take advantage of potential growth in this area.

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