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Blog January 22, 2020 Anurag Gupta, CFA

Where Are The HNIs Parking Their Money?

“If you do not find a way to make money while you sleep, you will work until you die” – Warren Buffet.

 

Though the above-mentioned quote holds true for almost every single person living on this planet, this couldn’t be truer with the HNIs & UHNIs, where a majority of them draw their earnings from owned businesses. Not only investing in the right asset classes and subsequently the instruments (as per the risk-return profile) is of prime importance but making sure that the whole portfolio is well diversified across various sectors, asset classes, etc. is also one of the key parameters. 

The wealth management industry has grown leaps & bounds over the last 10 years. As per Capgemini report1 , back in 2008, India had ~84,000 HNIs but it is estimated that the number2 would go up to ~529,940 by 2021. The investible assets of HNIs are expected to grow at a CAGR3 of ~19.7% to US$ 3 tn by 2020. Though the portfolio of HNIs generally contains plain vanilla instruments of mutual funds (both equity & fixed income), bonds (taxable & tax-free), PMS (Portfolio Management Services), real estate, etc. but recently there has been a keen interest from HNI community towards alternative investments such as private equity, long-short funds, alternative investment funds, offshore funds, etc. 

Source: Karvy Private wealth Report & Capgemini Wealth Report 2019

Financial Wealth Allocation in FY19*

New Flavor of Investments: Alternate Investments

Real Estate – While the residential housing sector has been bleeding because of various regulatory changes (RERA, GST), liquidity tightening due to NBFC crisis, etc. the commercial real estate is witnessing a steady growth and holds promise for the future. Though the government has already announced a ~INR 105tn infra plan to boost GDP growth of India, we feel, following will be the key investment vehicles for future:

  • Warehousing – with growing e-commerce industry, there has been a continuous rise in the demand of warehouses as well. Also, with increasing manufacturing base in our country, the growth of warehousing industry has become more important for efficient supply change management
  • Commercial Real Estate – pre-leased properties for office space, and co-working (shared office spaces) have also picked up pace in the recently concluded decade

Unlisted Equity (including Private Equity) – For the calendar year 2019, private equity investments touched $17.3 bn4, thereby witnessing a whooping gain of ~61% over previous year. The investments have been at a 10 yr high and the same is expected to grow further as IPO markets pick up pace (opening an exit route for the PE firms). Since last couple of years, various family offices (especially in India) have been actively investing in private equity investment vehicles. along with private equity, unlisted equity space has also been seeing a good traction with major transactions happening in the pre-IPO stage. With India growth story unfolding, there are many small & medium enterprises which are expected to grow into major corporations, thus unlocking considerable wealth opportunity for both, the promoters as well as the investors.

International Assets – While major chunk of the portfolio remains invested within India, but recently, investment in global markets (through the route of ETFs, fund of funds…)

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