BackHow the rich invest
They prefer to invest across equity and debt, but real estate is a favourite
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Shreedharan Chandran, head of Coimbatore-based Woodbriar group, does not take his wealth for granted. This despite the fact that his net worth is well over ₹ 25 crore, if we go by the benchmark used to categorize the new rich.
All of 39, Chandran owns 23,000 acres of tea plantations in Tamil Nadu, Kerala and West Bengal, and counts consumer goods giants such as Tata Global Beverages Ltd and Hindustan Unilever Ltd as his customers. Chandran, like many other wealthy people, keeps a close eye on his business and investments. “I play a proactive role in managing my investments through my wealth managers. They recommend, but ultimately I take the final call," he said.
Others do the same. Ashish Shanker, head-investment advisory, Motilal Oswal Private Wealth Management, said the rich often have three-four wealth managers.
Typically, those with a net worth of up to ₹ 500 crore tend to make their investments themselves, with the help of their wealth managers. Those with higher net worth (these are rough estimates, though), typically, create structures or family offices to manage their investments as well as their companies’. These are trusted dens led by long-term faithful employees who enjoy tremendous confidence from their employers, often, because they manage the boss’s personal wealth as well.
“I have been working for the past 30 years. I know what they want and so suggest instruments accordingly. Also I consult our wealth managers. Around 99% of the times, whatever I suggest, my employers accept," said Pravin Jain, chief financial officer of Pune-based Desai Brothers Ltd, a 100-year-old group that manufactures bidis and owns the Mother’s Recipe food products. Jain, who is 51 years old, had started work with this very company after passing his chartered accountancy examinations in February 1985. He also heads the Desai family office, which itself employs seven people. Some of them do investment analysis, one is a taxation specialist and another an accounting specialist.
“Some family offices are very evolved. They are clear in their investment strategy; they have super-specialized people handling different functions in their teams. They understand risks, they may already have a list of securities prepared where they don’t invest. Decision-making processes are also in place," said Anshu Kapoor, head-global wealth management, Edelweiss Global Wealth Management Ltd.
Multiple baskets
If these entrepreneurs understand the risks to their business, they also understand the risks to their income, which is why most investors in this category have multiple wealth planners. Mumbai-based Paresh Mehta, 54, has business interests in pharmaceuticals (he runs NBZ Pharma and Kilitch Healthcare), and uses the services of two wealth managers. “We want to have more diversity in managing funds. We don’t want to put all our eggs in one basket," he said. But isn’t it confusing to have more than one adviser on, say, one investment? No, said Chandran. “Over the years, investors have become more aware and educated. I have been investing for the past 15 years myself and so have a fair idea of what is good advice and what isn’t. Also, wealth management firms servicing clients in this category are limited, so they, too, look for long-term relationships and take a long-term view of our investments," he added.
Wealth managers make it a point to meet clients regularly. Mehta, for instance, insists on meeting his wealth managers at least twice a month, apart from speaking over the telephone twice a week.
Where do they invest?
The new rich prefer to invest across equity and debt and have a fair bit of their wealth spread across asset classes. Of course, wealth managers ensure that their asset allocation is on track. They access equities both directly and through mutual funds. In debt instruments, they look at usual instruments such as fixed deposits, certificates of deposit (in case of family offices, on account of their size) and debt mutual funds.
Real estate, however, is a favourite. “These days, wealthy investors are looking at commercial real estate as well with increased interest. The prices of commercial real estate are definitely lower than residential real estate in any given area but the yields of the former are almost three times higher. That’s why they prefer to invest in commercial real estate more," said Prateek Pant, director of products and services, RBS Private Banking.
Another reason is their ability to maintain it. Chandran, who has allocated 40% of his wealth towards real estate, prefers to stick to metro cities. “I invest in real estate as I have the resources to manage it. I avoid buying real estate where I don’t have a local office or a representative," he said. Mehta, too, prefers proximity to his real estate investments. “I buy property only within 300km of Mumbai, where I live. That way, we can keep an eye on it and travel to that place whenever required," added Mehta.
There, however, seems to be distinct difference in involvement style based on geography. According to Shanker, a typical Delhi-based big-ticket investor is “more hands-on with investments and investment portfolios than one based in Mumbai. A Mumbai-based promoter can do such things through his chartered accountant or family office".
Investment styles as well as preferences differ. “Clients from north tend to have a very strong bias towards real estate and are open to taking risk. South-based clients are also extremely relationship driven, but very conservative in their investment approach. In the west, however, each client is attached to multiple advisory firms due to the larger presence (of such services) there. They are very professional and to the point," said Kapoor.
Typically, the first-generation, self-made entrepreneurs or professionals like to manage their wealth themselves. Wealth managers say those who’ve come up the hard way, from modest beginnings or from a culture of thrift, are cost conscious. “Many promoters of mid-sized companies are from middle-class backgrounds. They are simple in their lifestyles and don’t take too many risks in investing," said Shanker. Some wealth managers claim it’s common to see first-generation entrepreneurs, especially in sole proprietorship firms, to not separate personal wealth from their business assets. Any surplus, which could be taken out for personal use, is left in the company. As a result, if the business hits a rough patch, the entire wealth becomes vulnerable.
Another trend gathering strength, say wealth managers, is active participation in philanthropy as a means to distribute their wealth, wisely and strategically, and not through ad hoc donations. “We have a client who has donated 20% of his company shareholding to a foundation that promotes civic awareness among children," said Pant by way of an example.
Investment isn’t always the reason why a client approaches a wealth manager. Sometimes the queries can be highly unusual. Helping a large retail mobile phone store wanting to provide insurance cover to customers on every phone sold, getting insurance cover for 1.5 million members of Karnataka’s largest religious trust, and providing help in procuring a crane for a logistics company client, are some of the requests that Kapoor has handled.
Building bridges
Ultimately, say wealth managers, it’s a long-term relationship that goes beyond the typical “investment needs". And it takes time to build these relationships; it can take six months to up to two years to get a client on-board. “Almost 50% of our clients come through referrals," said Shanker.
With such high net worths involved, getting them on-board is just half the job done. The other half is to retain them. The creamy layer among the new rich, especially family offices such as the one that Jain runs, are some of India’s most lucrative clients that a wealth manager can have. And if Jain can summon some of India’s top fund managers such as Prashant Jain (HDFC Asset Management Co. Ltd), S. Naren (ICICI Prudential Asset Management Co. Ltd) and Kenneth Andrade (IDFC Asset Management Co. Ltd) to Pune to brief him about how their schemes are doing, it’s indeed a tough job to meet expectations.
But for those who are happy with a wealth manager’s services, it’s a cozy relationship.
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