India’s Validus bets managing family silver will help it break into the big league
ASIAN PRIVATE BANKER, 20th September 2021, Atul Singh
A value-for-money and tailor-made solution catered towards wealthy Indian families will likely be the key for Validus Wealth as it seeks to differentiate itself in an increasingly competitive market, CEO Atul Singh told Asian Private Banker.
Indian U/HNWIs and wealthy families often prefer not to have a manager or a broker take care of a core part of their equity portfolio, the former Julius Baer India managing director and CEO explained. A manager is expensive and a broker has an incentive to frequently trade, with both options at odds with what is best for the client, Singh added.
Validus Wealth will invest any discretionary mandate in a staggered manner and at half the average 2.25% fee charged by the competition, Singh claimed. “I don’t want to give it (the mandate) to an advisor or a RM because they may not be in touch with the airings of the financial world,” he explained.
“For operational efficiency, our CIO office will manage it because they are the best people to build and manage such a portfolio”
U/HNWIs in India prefer to hold a core portfolio of 10-15 blue chip stocks for the long-term, he pointed out. But that alone represents a big chunk of India’s wealth market, he added.
Validus Wealth wants to increase the share of discretionary mandates to 20%-25% of the core equity portfolio of investors, Singh said. This is separate from a wider equity portfolio that the firm manages on an advisory basis, he explained.
The Indian wealth manager witnessed a 57.7% YoY increase in AUM to US$600 million in 2020, albeit from a low base, according to Asian Private Banker’s proprietary India Private Banking & Wealth Management AUM survey.
Singh is aiming for an AUM of US$2 billion or more by adding 50-100 new clients a month — in addition to its existing l,50o clients. In June 2019, LGT acquired a majority stake in Validus Wealth in an attempt to build an onshore India play amid a wider expansion into Asia.
Hedging options
Singh said that clients have increased their allocation to gold steadily and are also looking to manage the risk in their equity portfolio by hedging using put options given the expected volatility in stock markets. With India’s GDP growth accelerating to 20. 1%6 YoY in the April- June quarter from a low base, Singh expects companies’ earnings to rise.
From a yield perspective, Singh prefers suitable alternative options to traditional debt products where the yields have gone down significantly.
With India’s nominal GDP growth hovering around 1596 over the past decade, investors could get away with holding a broad basket of shares, Singh said. “But now that the nominal GDP for the country has compressed, investing in alternatives, where you have a liquid, slightly higher risk but slightly higher returns, become a real asset.”
Venturing out of traditional avenues
Within alternative investments, venture capital is drawing interest from U/HNWIs, Singh said. With the recent listings of tech companies as well as a large number of unicorns, Validus believes India’s VC market is coming out of its nascent stage and is being seen by U/HNWIs as an important asset class.
There has been a marked development in the availability of hedge funds, which may act as an alternative to gold, Singh said. An allocation to gold in a portfolio typically serves as a hedge against a downward move in equity or bond investments, but this function can be equally fulfilled by a hedge fund.
In addition to the classic long-short hedge funds, the availability of onshore long-short hedge funds can deliver a 7%-8% annualised return despite bouts of volatility, he added.
“This type of investment strategy (the ability to short) was not normally available to traditional mutual funds or PMO (portfolio management service)” said Singh. The availability of such products is still limited, he added.
“The large families that we work with are definitely exploring such options, they realise the importance of this new allocation to this segment, and they’re looking for products, Singh told Asian Private Banker. “I expect that in the next four to five years, the market will mature, and even be driven by the need for yield”