Investing in real estate, gold and alternative assets
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There is more to investing than financial instruments such as stocks, debentures and mutual funds. Gold and real estate have been the traditional investments. But now there are several alternate investment funds (AIFs) too, to choose from. Discussing these assets, and more are: Ramesh Nair, chief executive officer and country head, JLL India; Somasundaram P.R., managing director, World Gold Council, India; Atul Singh, managing director and chief executive officer, Julius Baer, India; Munish Randev, chief investment officer, Waterfield Advisors Pvt. Ltd; Vineet Arora, executive vice president, ICICI Securities Ltd.
The discussion was moderated by Lisa Pallavi Barbora, consultant, Mint.
Lisa Pallavi Barbora: In terms of gold, one knows what you are buying. You can have the carat, get a certificate and everything is specified. So, is that one of the appeals for a savings-oriented country like ours—that gold is safe?
Somasundaram P.R.: Actually, contrary to that, under-caratage is the highest in India. People, on an average, lose 15% (we did a survey). So... everybody will lose 15%. If you see, even if you pay by cash and you don’t take a bill, you save hardly 12% tax because all the taxes together are 12%. So, consumers haven’t been really made aware of this. About 90% of this industry is in cash. That is the other big thing. It’s not that all people were buying gold with unaccounted wealth but somehow, they needed a little bit of obscurity when it came to buying gold, which is now probably going away with all the cash limits and (compulsory) PAN cards. One of the reasons why demand fell last year was because consumers and trade haven’t adjusted to it. But as the (World Gold) Council, we believe that this is just going the China way where not only will transparency come into the jewellery trade, it will also be picked up by the financial sector; because in China, banks are the biggest sellers of gold. If you want to do a gold savings, you walk into a bank. You don’t walk to a jeweller. And they say I will deposit for 2 years. ICBC is the biggest one. So we believe that...gold-based financial products will come into the Indian system through the banks. And that will also improve transparency. It will be good for the consumer. But awareness is still not there.
Barbora: Between real estate, gold and alternate funds, what is your top pick for the financial year 2017-18?
Munish Randev: We’ve been very vocal about it and we will be vocal about it. The class of people that we manage, which is the ultra high net worth families, already have a lot of real estate and gold. I can tell you, 60% of the conversions happen on the alternate space because they want to have an actual uncorrelated asset class. See, the global financial crisis of 2008, showed us that all asset classes went down together. So un-correlation was not there. But the venture space and the private equity space is one area we are looking for more, considering the way the valuations are. And for the concerns about valuations, I think it’s a good time to come back to the market and start looking at investments there. So I would pick venture capital early stage, and to a certain extent Series A and Series B kind of an investment.
Vineet Arora: So, I would say real estate is slightly heavy right now. Commercial real estate looks good, so that might be a good opportunity to get into. Gold seems to be pretty okay from a long-term angle. Alternates, if you understand it then go for it. If you don’t understand them, stay away for some more time.
Atul Singh: If it was unconstrained, I would have said certain listed equities. But between the three that you have posed, I’ll go with alternatives—the AIFs.
Somasundaram: I know gold more than the other two; so I’ll stick with my comfort level.
Ramesh: I’ll go with office space in Bangalore, Pune and Bombay and residential space in Pune, Hyderabad and Bangalore.
Barbora: With AIFs, lack of transparency means it is hard to assess which fund is better than the other. With minimum information in the public domain, is the buyer at a loss? What more can be done?
Randev: You’re absolutely right. We don’t have the luxury of having a very long track record.... So I’m talking about last 7 or 8 years when some of the advisers started individually trying to build in models to assess these funds. All AIFs are very people centric. It’s people who are assessing start-ups, especially in the venture capital space.
Assessing funds is a combination of objective and subjective parameters. So objectively, you can look at the background of the person who is managing it.
Watch the discussion at: bit.ly/2o6hFKJ