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Banks woo wealthy customers with PE, gold fund offerings

Banks woo wealthy customers with PE, gold fund offerings
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First Published: Fri, Aug 08 2008. 12 00 AM IST
Updated: Fri, Aug 08 2008. 12 00 AM IST
Mumbai: Have Rs10 lakh?
Well, you can go ahead and produce a film and, possibly, rake in returns when it becomes a box office hit.
This is the pitch India’s second largest lender ICICI Bank Ltd is making to its private banking customers, or the well-heeled.
The bank is offering its private banking customers the option of investing in film production and has formed a partnership with Cinema Capital Venture Fund that will raise Rs750 crore from investors, including a greenshoe option of Rs250 crore.
A greenshoe option gives the issuer the right to sell investors more shares than originally planned.
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ICICI Bank is one of many Indian banks devising alternative investment options such as private equity (PE), structured products with a capital guarantee, and gold for high networth individuals (HNIs) at a time when returns from investments in equities and real estate have turned volatile.
After offering a return of at least 45% in each of the past two years, the Sensex, the Bombay Stock Exchange’s benchmark index, is down around 25% since January.
Property prices in the big cities have come down around 10-15% in the past six months even as the central bank has raised interest rates and tightened liquidity in an effort to rein in inflation that is at a 13-year high, and control soaring consumer demand for a variety of products and services in Asia’s second fastest growing economy.
The so-called cinema fund, marketed by ICICI Bank, is looking at an annual return of 35%. There is a five-year lock-in for investors and minimum investment is Rs10 lakh.
“Alternative investment is catching up...as the equity market is not doing well. Structured products and investments in private equity funds have been emerging as an asset class. We are marketing the cinema fund to our private banking clients,” says Kanwar Vivek, general manager and head of global private clients (domestic) at ICICI Bank.
T.R. Ramachandran, head (retail bank) at Citibank NA India, agrees with Kanwar. According to him, PE has arrived as a major player in the alternative investment universe “differentiated by its propensity to generate higher absolute returns while improving portfolio diversification”.
Sandeep Das, general manager (wealth management) at Standard Chartered Bank, also speaks the same language: “Private equity as an asset class has emerged in the high networth individual segment since the threshold entry size is high. With the real estate boom, there have been a number of players with such funds.”
According to him, even diversified and sectoral PE funds are doing well. “This has exposed the investor to a whole new asset class of unlisted equity.”
According to the latest edition of the World Wealth Report by Merrill Lynch and Co. Inc. and Capgemini released in June, India’s HNI population growth was 22.7% in 2007, against 20.5% in 2006. These individuals have net assets of at least $1 million (Rs4.19 crore today), excluding their primary residences and products they own.
The report did not give the number of ultra HNIs in India, defined as people with net assets of at least $30 million, excluding their primary residences and products they own.
It is some of these people who are being targeted by the banks.
Ajay Loganadan, head (investment advisory group) at HSBC private banking, says the bank’s high networth customers are “finding great comfort in investing in capital-protected products”.
Such products guarantee investors the preservation of their capital and the return is linked to the performance of an underlying index, or a basket of stocks.
“Investment in capital guarantee products are seeing investors interest,” says Ramchandran Krishnan, head (investment and product office) at Barclays Wealth, the wealth management division of Barclays Bank Plc.
He has advised some of his clients to invest in short maturity fixed income assets, ranging from one-three months. “We do not want investors to get locked in longer tenure assets.”
Citibank, which serves close to 500,000 of Asia’s affluent through Citigold banking, is offering gold through mutual funds. “The diversification benefit offered by gold has garnered tremendous investor interest. Moreover, since it has become available through mutual funds and exchange traded funds, its easy availability and liquidity make it popular amongst investors,” says Citi’s Ramchandran.
Axis Bank Ltd, a relative new entrant in the private banking space, is also seeing its investors showing more interest in gold. “The bullish sentiments on the real estate market have died down. Gold is coming up as a good investment option. We are seeing growing interest from individuals to invest in 1kg gold biscuits. Traditionally, gold has always given a return in excess of 8% annually,” says Sonu Bhasin, senior vice- president (wealth management) at Axis Bank.
ICICI Bank, which has 150,000 customers under its wealth management business, is aggressively marketing PE funds. Apart from the cinema fund, it has sold an art fund, Crayon Capital Art Fund, which has so far been offering 20% returns annually. It has also marketed the TVS Group’s small industries fund.
The Merrill Lynch- Capgemini report indicates that investors’ interest in alternative asset classes is rising. According to the report, in 2009, asset allocation of HNIs worldwide in alternative investments, including structured products, hedge funds, derivatives, ventures funds and PE, will increase to 11% from 9% in 2007.
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First Published: Fri, Aug 08 2008. 12 00 AM IST