Global citizenship is plan B for Ultra HNIs, says Himanshu Kohli of Client Associates
In the concluding segment of the interview with MintGenie, Himanshu Kohli, Co-Founder of Client Associates, discusses topics such as global citizenship, private equity, and debt, among other subjects.
In this final part of the interview with MintGenie, Himanshu Kohli, Co-Founder of Client Associates, talks about global citizenship, private equity and debt, among others. Click here to read the first part.
Can you explain a little about global citizenship and how it helps UHNIs?
Many families in India are also thinking about having a plan B, which means if tomorrow something goes wrong in India, they have a backup outside India, which is where their plan B comes into the picture. This could be either in the form of residency permits or citizenship of another country.
For instance, in China, we saw that the government became very harsh with the wealthy Chinese, and they ultimately had to move out of China. Hence, many UHNIs are also thinking that if tomorrow the government becomes tough with the wealthy Indians and comes out with policies to tax the rich, then they need a plan B in place, and that's where global citizenship comes into the picture.
How do family offices go about helping their clients with global citizenship?
Firstly, we draw their financial plans. We understand their needs, the breakdown of those needs, what percentage will be in India, what percentage will be beyond India, and even beyond India, which geographies they would like to consider. Now, we help them to diversify as per those geographies. If a child is going to study in the US, a portfolio is created to hedge against currency fluctuations. We will also look at the allocation between asset classes in those geographies.
We also provide a service on the immigration side, and we have a tie-up with Global North and Henley & Partners, where we help our clients if they want to settle or have a house or base beyond India. We take support from these firms to assist our clients with their immigration issues. We also work with various tax advisors on structuring our clients' wealth to be tax-compliant. We also ensure that we are compliant from the estate planning point of view. We need to consider succession issues for future generations when diversifying outside India.
For instance, what laws, succession acts and taxes are applicable? In short, one takes a holistic view and keeps all these points in mind while diversifying beyond India.
What is your perspective on global citizenship through investment programs? How do you evaluate the benefits versus the risks?
Specific investment programs are encouraging global citizenship. To be more specific, a few countries like Portugal, Spain, and the UK have specific investment programs. We assess our client's needs and study these investment programs, like what risks are involved and what return one can expect, and then do some cost-benefit analysis similar to what we do for any investments within India. In short, we act as generalists, but we also have people who are domain experts.
While we take their input, we also do our homework, like checking the developers' credentials and the city where the real estate is available, and based on this, we give our feedback to our clients. We believe that ultimately, the clients have to make the final decision, so they will take inputs from us, do their own research, and speak to certain specialists who are there in their universe, and based on that market intelligence, they make a more informed decision. Our job is to give them more data points to analyse the investment opportunity because the client has to make the final decision.
After all, the returns and risks are for the clients while we are only service providers. It's a combination of us, our advisors, and our clients' connections, which we bring together to develop an appropriate investment opportunity for our clients. By now, we have done work on several such cases, and our knowledge levels have also gone up, so we have also learned over time, which has helped us become sharper in our skill set.
How does your family office navigate the legal and tax implications of acquiring global citizenship?
We have a tie-up with legal firms, tax firms, and specialist firms that work on this particular need, and they have a panel of lawyers and tax advisors in their ecosystem from whom we take an opinion. We are more like the GPs as we understand our client's needs. Then we go to the specialist if there is a need, and then we need to go to a super-specialist to get a particular legal or tax opinion.
What are your views on private equity and private debt as investment options? What criteria does your family office use to evaluate such investments?
We have become far more comfortable in this space over the last 15 years as we have carefully examined these asset classes and increased the exposure, especially in private equity. Here, we typically prefer our clients to go through a fund route because an experienced team is hands-on in dealing with this investment opportunity. The team spends a reasonable amount of time doing detailed research on the companies before deciding to invest in a particular business. It makes more sense for clients to go through a fund route as it gives them a diversified portfolio rather than investments in just 1 or 2 companies.
In our model portfolio, we have included a couple of private equity or venture capital funds, and these are recommended to our clients. On the other hand, private debt, venture debt, or high-yield debt is also gaining slightly higher mindshare and wallet share of our clients. However, it is still early days as this asset class is still evolving, but we are taking some baby steps in recommending the same to our clients.
Art and Collectibles are another asset class for UHNIs. What are your views on Art and Collectibles as an investment option?
The allocation towards alternates has been increasing, and Art and Collectibles could be a tiny portion of this segment. Families can enjoy these things, but since there is a gap between demand and supply, the value of these things also increases over time. This is because there is a limited supply of Art and Collectibles while the proportion of HNIs and UHNIS is increasing rapidly.
UHNIs, especially young billionaires, have become experts and collectors of Art and are trying to give it a larger allocation in their portfolio. However, we suggest that clients buy Art to enjoy it. Still, if they consider it an investment option, we recommend only a tiny portion of the overall wealth, and only a single-digit exposure is required.
Regarding this investment option, there are some cons, like the market could be less transparent and less liquid than bonds and equities. This means there is an illiquidity risk /transparency risk, which leads to a difficult situation when they must sell it. We highlight some risks to our clients, who make their own decisions. This is also why it is not a mainstream asset class, while it could be just a satellite asset class with very little exposure, which clients are willing to take.
How do you help your clients with their philanthropic activities?
Most of our clients want to do something or the other for society, and our role here is to try and understand their interests, whether it is towards education, healthcare, the environment, or creating more employment or skill development. We attempt to understand what social projects are closer to their heart, and accordingly, we bring in the enterprise that is pursuing those activities and doing a good job. It is a pure contribution towards society. It is about giving back rather than as a business for them to earn their fees.
To be more precise on how we handle this, we bring in some very credible organisations based on clients' defined objectives and connect the two of them. This initiative helps the clients fulfil their aspirations, and those institutions get capital, which is utilised towards that cause. For this, we, first of all, identify our client's needs, how much capital they want to contribute, if they wish to do it on a yearly or regular basis or a one-time, and if they want to create a corpus for this purpose or will it be a stipulated amount every year. In short, we help our clients identify areas closer to them or their families. Then, we identify the opportunities available in those sectors run by credible people.
Are there any differences between how you handle your male and female UNHIs?
I think the process is the same, but their needs could differ slightly. Hence, we customise those financial plans based on each one's needs. For instance, if a divorce happens and there is alimony that comes in, we will try to secure the women's financial future so that they get their regular income from that corpus. In case they are not working and don't have an alternate source of income, we prepare an appropriate financial plan to secure their future.
In addition to this, suppose there is a death in the family, and there's insurance that comes in. Then, we will rely on our financial plan to make sure that the corpus is allocated to different asset classes and can benefit the family in the future. On the other hand, if a professional is running a law firm, and whether it is run by men or women here, there is little difference between the two and how we manage their wealth.
Padmaja Choudhury is a freelance financial content writer. With around six years of total experience, mutual funds and personal finance are her focus areas.
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First Published:16 Feb 2024, 10:19 AM IST
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