India’s Evolving Wealth Market and Curating Winning Investment Portfolios for Private Clients

The wave of India’s private wealth has been rising across the board – from the mass affluent segment to HNW and UHNW clients – for some years now, and all that money needs to be invested somewhere, at home or overseas, in public or in private markets. Bryan Henning, Head of International for the family office specialist advisory Eton Solutions, chaired a panel discussion at the Hubbis Wealth Management Forum in Mumbai on August 31 at which a panel of experts offered their views on what types of allocations are today advisable for their wealthy clients in India.

Chair: Bryan Henning, SVP and Head of International, Eton Solutions

Panel Members:

• Onkarpreet Singh Jutla, Chief Product Officer, Nuvama Private
• Bharat Pareek, Head of Products and Segment, ICICI Securities Private Wealth Management
• Prashant Joshi, Co-Founder & Partner, Family Office Advisory, Upwisery
• Devang Mehta, Director – Equity Advisory, Spark Capital Private Wealth Management
• Dharmendra Jain, Senior Vice President, Kotak Mahindra Bank

The Indian wealth market today offers far more choices to clients than ever before

A speaker pointed to the availability today across the private banks and wealth managers of a product approach, the advisory proposition and a discretionary portfolio management offering. The differentiation, he said, comes from the delivery of new concepts and ideas. He pointed for example to a real asserts strategy his firm had introduced back in 2018 and for which they had launched a second series, and more recently a management buyout fund offering access to supporting incumbent business leaders taking firms private or buying them off the founder-principals. And there are significant opportunities in other areas of private assets and markets, as well as investment in key commodities

There are also hybrid investment approaches - another guest pointed to one of the most popular areas currently, in the form of non-discretionary portfolio advisory and what he called the 4P model, with portfolios tailored to the profile of the client, curated in partnership with the client, with a clear process around the formation and, of course, clearly defined performance targets for the investments. He said this approach works especially well with UHNW and family office clients.

The advisory proposition in India is more accepted and the wealth industry is now better able to monetise this approach

A panellist highlighted how clients have accepted the advisory model over the past few years. He said their bank came out with their new and differentiated advisory platform in 2020, wondering at that time if Indian investors would ever pay for it.

“We followed that path, believing that if the platform offers the basis of knowledge, the basis of capabilities to get great products for the investors, there will be a market to do it wisely,” he said. “And it has worked as today, 25% of our assets are under the advisory model where we work with the clients, and not only on in-house ideas but also external third-party wealth managers who provide their boutique ideas or differentiated ideas for our clients. We are happy to get our clients access to those investments as well.”

He concluded that advisory is going to grow bigger in India. He said that as more Indian business families and owners sell out either publicly or privately there is an ever-growing swell of money heading towards financial assets and therefore a growing need for more professional portfolio advice and management.

The diversification of portfolios continues apace, especially for the wealthier investors

Another expert explained how portfolio formation had become considerably more sophisticated for private clients. He pointed to the typical clients of their MFO, explaining that allocation is now expansive in terms of the debt and equity capital markets, private equity and debt, alternative/private assets and so forth.

“We built a team of experts including investment bankers and other specialists to deliver advice across all these asset classes,” he reported. “We take the big picture approach of looking at the right investment strategies and frameworks for the families, we are fully open architecture, and we are entirely objective.”

They also observed how these days the approach must be more holistic, and designed to remove anxieties about either curation or ongoing management of the portfolios. It is also about taking a view on the future needs of the younger generations of these families, as well as forming a 360-degree vision of the family businesses, the continuity, the needs ahead, and so forth.

Strategic and tactical allocation, risk management and targeted returns

Another guest pointed to the two critical components of investment advice - strategic and tactical allocation to create an alignment of solidity, risk mitigation and agility.

“As wealth managers, we are programmed to try to reduce risk,” he said. “Risk mitigation, risk management and risk navigation are all skills that we focus on intently. We also do not believe that high risks mean high returns. Equities in India given the country’s economic trajectory will do well in the medium to long-term, and it is valuable to have exposure to private as well as public equity, and for further balance then fixed income provide stability and yield. Right now, we are optimistic and weighted towards equity.”

Another guest explained that their wealthy clients prefer the private markets of all types currently, given their ability to be patient and remain invested for the medium to long-term view. He said public equities are expensive, with India trading at one of the highest valuations within the larger EM markets, but Indian private equity and credit are likely to perform well over the years ahead and not subject to the nearer-term volatility of the listed markets.”

Another expert opined: “What is a winning portfolio? It depends on the risk appetite and profile of the clients. For me, low risk, low but reasonable returns, and all with low volatility is a winning portfolio. But other investors might have higher risk appetite and feel more comfortable with those exposures. In short, one portfolio does not fit all investors – they must be tailored to preferences, risk appetite, needs and expectations, and of course to prevailing conditions. In the family office context, a portfolio reflects the behavioural or investment temperament of the family.”

Innovation is also in greater demand in India

A guest who observed that a key change in the local wealth management space is that more and more clients are looking for new and innovative solutions, perhaps which can give them access to a lot of sub-asset classes that might hitherto only have been accessible by institutional investors.

Remember – there are risks in being under-invested, under-diversified and under-allocated

The final word went to an expert who pointed to the risks in a dynamic and expansive economy such as India of not being properly invested, of not seeking diversification of exposures and of not optimising allocations for both solidity and agility.