Markets are going through interesting times and investors today are faced with multiple challenges given the geopolitical risks and the effects of illiquidity infused by Central banks over the last two years. The pandemic has also shifted the lens to digital, and the wealth management space has been no exception. With so much volatility being witnessed, how does one help HNI and ultra HNI clients navigate through volatile times in order to meet their investment goals.
Nitin Singh, Managing Director and Chief Executive Officer of Avendus Wealth Management, speaks about how the private wealth management space in India is witnessing winds of change and how you as an investor in these times need to keep the focus on asset allocation. He also turned the spotlight on the changing face of the new-age investor and how the next generation is influencing innovations in the wealth management sector. In today’s market, he advised a diversification towards fixed income to yield better than market returns in your portfolio. Some edited excerpts.
Q: Let’s start off with understanding what Avendus Wealth specialises in and what sets it apart from several other Indian and international banks and other private wealth management firms in India?
Nitin Singh: Avendus is a diversified financial services group. We have got a number of practices ranging across investment banking, wealth management and our lending platform. We have got a very niche alternate asset management practice focusing both on hedge funds – we were the first hedge fund in India – as well as a leading structured credit and late growth stage private equity fund.
Avendus Wealth is a leading financial services firm offering bespoke investment solutions across asset classes, family offices, and lending. We understand the complex financial needs of UHNIs, family-owned businesses, entrepreneurs, and corporate treasuries. At Avendus Wealth Management we offer them unique products and state-of-the-art services with superior execution, robust investment policy framework, and rigorous diligence.
With this, we leverage our resources and industry-wide network to craft optimal wealth management and advisory solutions to help our clients achieve their financial and strategic goals.
I think one of our largest specialities is that we are cutting edge and we have ahead of the curve insights in terms of looking at what is happening on asset classes, world views, etc, and being able to come out with insights ahead of time. The second is being able to convert these into actionable and innovative product ideas, to ensure that clients get to see the best of whatever there is on the platform ahead of time.
There are three main pillars of the wealth management business – the people, the platform defined as the array of products, services and solutions that you offer, and the brand. In 2019-20, we were a team of 80-90 people across the country including about 25-30 RMs for an Assets Under Management (AUM) of ₹18,000 crore. Today, we have ₹50,000 crores of AUM and have grown to a team with 60 RMs covering our key clients.
Q: Technology has become a part of everything we do today. Do you believe that wealth management too has become far more evolved with the integration of technology?
Nitin Singh: The short answer is yes. Customers, today, have four core needs. The first is to have a platform which provides reporting. The second is insights on what they are investing in, the third is new product opportunities and fourth is the need for an efficient transaction platform. Interestingly, as the asset classes that customers are investing in are becoming more and more complex, there is a need for further unravelling to see what they are putting their funds in and tracking it on a regular basis.
Technology is playing a major role in all of these, and we will continue to see innovation. I think every private wealth player must invest in technology in a large way to ensure that on the back end, they are able to achieve scale and efficiency, make customer journeys more seamless, and on the front end they are able to provide platforms for customers to be able to view everything that they want to at the click of a button.
In fact, we spent the last one and a half years working on an app which we have just released to our clients and team a few days ago. It is one of the best in class apps that we are releasing in the private wealth space.
Q: In the case of Ultra HNIs, do you believe there is a greater emphasis on efficiency today over human relationships? How are you adapting to this change?
Nitin Singh: In private wealth management, whilst there is nothing replacing the role of an RM and the role of trust, technology and innovation on this base is here to stay. Covid has led to an acceleration in many things in wealth management, including technology.
The pandemic converted a business that was completely face to face 2-3 years ago, to a completely virtual model. As a result, several wealth management firms had to, almost overnight, deal with customer journeys right from how they reported statements to customers, to how they interacted with customers on an ongoing basis, to how they are onboarding customers, and to how they did the transaction flows for the customers using tech. Technology does not replace the wealth manager, but totally complements it.
The role of a wealth manager has gone from somebody who can service you with a great concierge and who you trust with your money, to somebody who can also add value to the transaction. The biggest piece of the wealth management businesses is trust. We have a very stringent investment vetting process which every product undergoes before it is presented before a client.
Q: As the needs of an investor change, has the nature of investments being done by your clients also undergone a transformation?
Nitin Singh: The rapid financialization of savings that was already happening in India has gone to a different level. We have all seen the number of accounts getting opened and the amount of money that has started flowing into financial services and products. Secondly, people have started spending more time on their portfolio, and are becoming more demanding in terms of asking more questions. Thirdly, the product landscape has also changed and we have made up most of the gaps when we compare the Indian products with those available internationally, right from venture capital, private equity, stressed assets, fixed income credit, hedge funds, commodity arbitrage. There is still more innovation to happen, but I think it’s only a matter of time.
Q: Customers today have become a lot more financially literate. How have you created an ecosystem for alternative investments and how challenging has this journey been?
Nitin Singh: As markets become more and more traded and as there is more information available, the ability of a customer to create alpha – which is to give you better than market returns – keeps coming down. Typically, today for clients, about 80-90 per cent of the money continues to remain in traditional asset classes. So, you will have fixed income, equity with myriad pieces between the two, and you will also have alternative assets which can include everything from real estate, strategic investments in your own company, venture capital, private equity, to your angel investments, venture debt or structured debt.
If a customer is looking at making 13-14 per cent returns every year to beat nominal inflation plus GDP growth, he needs to take some element of risk. Globally, if you look at sophisticated family offices and investors, anywhere from 20-40 per cent comes from alternate assets. As long as you have information arbitrage and liquidity, you would typically tend to make better returns than what you would than investing into the public equity markets on a day-to-day basis.
In India, till before Covid, only about 5-7 per cent of family portfolios were invested in this asset class. During Covid, alternative assets have become mainstream. Last year alone, we raised upwards of a billion dollars in growth assets for our clients. Where everybody else’s understanding ends in the space is where our understanding begins. When everybody else woke up to this asset class in the aftermath of Covid, we were much ahead of the curve because people respected us for the fact that we had a very deep understanding of this ecosystem. We have almost a 90 per cent rejection rate for funds that we work with.
Q: How does one circumnavigate the geopolitical risks/ factors with regard to the new innovative financial vehicles as an investment opportunity for UHNW investors? Should UHNW investors consider it?
Nitin Singh: There will always be geopolitical risks. While investing into anything, you have to take into account both macro and micro variables and you also have to see what is happening globally. When there is dislocation and disruption in markets, there are opportunities. And the role of a wealth manager is to find those opportunities and highlight them to clients. Today, for instance, we are telling most customers to load up on traditional fixed income because there will not be a point of time in the cycle where you can take no credit risk and earn 7-8 per cent returns as compared to the 4-5 per cent return that we were getting a few months ago.
Secondly, there is nothing that takes care of risks better than asset allocation. Clients need to be invested across portfolios and in line with their risk profile. Whether it is a new innovative product or an old one, you need to see it in the same light. The one thing that is common across most innovative financial vehicles is liquidity. So, you are typically locked in for longer, the illiquidity allows you to ride through the cycles and make money on the overall portfolio. We work typically with entrepreneurs as customers and entrepreneurial fund managers, whose life is dependent upon the success of what they are doing. Clients sometimes see wealth managers as product pushers. But, increasingly in the Ultra HNI space, a good wealth manager is one who is an advisor sitting on your side of the table.
Q: The next generation of UHNW investors has faced countless events that have shaped their priorities on wealth management. How is the next generation influencing the investment industry and innovations in the wealth management sector?
Nitin Singh: Private wealth management was always about leaving a legacy and preservation of capital from a longer-term perspective. In India, traditionally, the nature of wealth is old money. But, over the last few years, we are dealing more and more with first generation and second-generation entrepreneurs, who are at an age where they are continuing to create wealth for themselves. They look at the wealth that they put aside with a very different lens and are much more open to innovative ideas. Most of them have a huge amount of information, which is leading to innovation. Another interesting trend that we are witnessing is that more and more money is being created in Tier 2 and Tier 3 cities and these entrepreneurs are completely self-made. In fact, 60-70 per cent of the customers that we acquire or our client base plus new customers that we add in can be classified in some form of next gen.
The Ultra HNI space, which is people whose financial net worth is more than 50 crores, is expected to grow at the rate of 25 per cent every year. There are about 80,000-100,000 customers today across India, which is expected to go beyond 3.5 lakh in the next 3-5 years. The opportunity is very large with new people entering the pool and the existing ones growing their wealth.
Q: What opportunities and ventures should UHNW investors consider given the current geopolitical scenario of the world in terms of global investment opportunities?
Nitin Singh: The markets are an interesting situation when clients should be looking at things carefully – asset allocation to ensure that it is in line with their risk appetite and also looking at a fixed income perspective as it is a great time to load up on safe fixed income.
From a private equity perspective and alternate asset class perspective, when it is the worst time for fundraising, it is the best time for investments. We are very upbeat about the start-up ecosystem in India. Digital and technology will continue to be a part of the mega trends that will shape India for the next five years. Therefore, you need to have that exposure to digital and technology within portfolios.
Markets have also run up tremendously on the back of increased expectancy of earnings growth. What that means is that typically traditional public equity markets will not provide huge returns over the course of the next year, or year and a half. It could be a time to look at specific stocks to invest in and specific ideas. But generally, when interest rates are high, then your global economy is slowing down. And even though you are seeing a lot of money flow into the market over the last 2-3 months, one cannot expect large double digit returns.
Customers should continue being invested. You should invest in a gradual manner if you have money, and you should do a mixture of passive at one end and select stock opportunities and select fund managers at the other. But, this is not the time to go overweight on equity. This is also a great time for customers to relook at their portfolios and substitute anything that remains for quality, including their money managers.
Disclaimer: This article has been produced on behalf of Avendus by HT Brand Studio.