Absolute Return Funds, Structured Credits, IPOs and Pre-IPOs, Stressed Assets, Art, Commercial Properties, Crypto-currencies - the plethora of seemingly exciting options in the investment world has never ceased to baffle HNIs. Assurance of capital protection and predictable - though much lower- returns of government/tax free bonds and bank deposits OR comfort of hard-assets like Gold and Properties, which are in direct control and possession, has always tilted the scale in their favour over Growth Assets like equities for a large section of investors.
While the basic principles of investments do not change with time, the dynamic environment of changing government policies, interest rates, market valuations, disruptive inventions and ever changing business models warrants a constant oversight on one's investment portfolios and regularly adjusting the same to changing times.
Over the last decade or so, with tremendous amount of new wealth being generated from monetisation of new business by techpreneurs or wealth being transferred from one generation to the next, many interesting trends have emerged in the way HNIs manage their family wealth. Some of the most notable trends are:
1. Structured and Institutional approach to Managing Wealth: Appointment of experts and advisors, setting up Independent Family offices or using services of a Multi Family Office, careful attention to estate and succession planning and following a clearly drafted Investment policy statement and Asset Allocation principles are some aspects showing the shift in mindset of earlier generation in the way they use to manage their financial affairs
2. Investment in Emerging Themes and Ideas: As investment product market in India is evolving with new products like AIFs, Venture Capital Funds, Long-Short Hedge Fund Strategies available for investment, current portfolio of HNIs is highly likely to have some allocation to some emerging themes and ideas.
3. Reduced allocation to Physical Assets and higher allocation to Financial Products: Popularity of Gold ETFs or Sovereign Gold Bonds (SGBs) over Gold bullion and Real Estate Funds over Direct Properties clearly shows this shift in investment patterns and mindsets
4. Outsourcing Fund Management to Professional Managers vs. Self-Managed portfolios: As oppose to individuals managing direct equity portfolios themselves based on tips, insider information (?), limited research etc, the new way of allocation to equities has gained prominence through Mutual Funds or Portfolio Management Services (PMS) managers. This might be a result of host of factors including but not limited to long term sub optimal performance of direct stocks holdings and lower cost of fund management. Even in Fixed Income space, HNIs have tightened their purses for the so called private lending - both to corporate (Inter Company Deposits ICDs) or even Real Estate Projects. This is clearly due to bad experiences of multiple defaults and delay in recovering the interest and in some cases even the capital lent (Return of Capital became much bigger concern over Return on Capital)
5. Global Diversification: HNI families are becoming Global - kids studying, marrying and living outside the country and businesses spread in different parts of the world are key reasons for geographical spread. This along with higher exposure to international investment world, network of friends, business associates and families and greater connectivity and information access has opened the World of Global Investments. RBIs policies (Liberalized Remittance Scheme - LRS) and ease of remitting funds for investments abroad has also helped in increasing popularity of Global Investments. Owing a house in London, US or Singapore was probably one of the first few avenues of Global Investments for families, however very soon this diversified into other financial assets like US stocks (Facebook, Amazon, Apple, Google etc) or taking exposure in other growing economies and markets through Funds and Bonds.
The changing trends mentioned above is hopefully quite pertinent and are in the right direction for HNI families' objectives - esp.- their endeavour to preserve and grow hard-earned wealth, focus on returns to beat negative impact from inflation and taxes, awareness and openness to ever changing business and investing environment and ability to transfer family legacy to next generation.
By Mr Nishant Agarwal, Managing Partner & Head - Family Office, ASK Wealth Advisors