The Hindu Business Line : Helping rich to become super-rich

Mumbai April 20 Domestic market volatility has given high networth individuals (HNIs) a reason to diversify a part of their investments globally and wealth managers are using innovatively structured products to help the rich become super rich.

With the RBI increasing the investment limit for individuals to invest in overseas market to $50,000 per financial year, traditional products such as investing in direct equity, equity and debt mutual funds may not fully feed the appetite of an HNI.

Also, the Know Your Client norms required to invest directly in global equity is a tough call.

UK bank's offer

A new offering in structured products available for Indians is what is called investing in `private equity fund of funds' or `bank's fund of fund.' A UK-based global bank recently raised over $1 billion globally to invest in funds of top private equity players.

These private equity companies will then invest in private equity of companies across the globe.

This was the second time the global bank offered the structured product to investors globally and the first time Indian HNIs were allowed to invest in it.

Around $30 million was raised from HNIs in India to invest in this global fund. Unitis Tower Wealth Advisors Pvt Ltd was one of the firms that advised its clients to invest in this product.

"There are very few private equity players in India and the global players in private equity would not be interested in managing an amount of Rs 1-5 crore from HNIs. Therefore, this pool of money raised by the bank globally is open for private equity players to invest in different companies across geographies and is an excellent option for an investor to diversify internationally," said Mr Nipun Mehta, CEO, Unitis Tower Wealth Advisors Ltd.

Mr Mehta, however, did not disclose the global bank's name.

Diversification

Since it has become extremely difficult for a single country to give consistent returns year-on-year, the element of diversification has now become a key as HNIs are looking not just at enhancing but also preserving their wealth.

"The investor benefits from this product through geographical diversification, diversification across industries and diversification of global fund managers," said Mr Mehta.

Also, investment in private equity requires lesser details on KYC norms.

Since the investment is in the private equity of potential companies, it is typically a long-term investment.

The return on investment would come as and when the private equity companies exit from the deals.

When the global bank offered the product for the first time in 2002, the distribution received on a $2,50,000 investment by an individual was $1,27,647 in a period of four years with the total commitment on investment being 12 years.

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