Satya Narayan Bansal , Chief Executive – India, Wealth and Investment Management, Barclays , says in a year or so, there would be significant re-investment risk in debt.

In an interview with Business Line , he suggests HNIs (high net-worth individuals) move slowly to equity from hereon, to balance their portfolio.

What are you advising HNI clients right now?

There are two distinct trends seen in the client portfolio right now. One, they thought that debt was a little more risk-free asset class which I don’t think is any more, at least in terms of mark-to-market.

So there is a lot of combing happening currently within debt as an asset class where strategies include playing on the yield curve, asset quality and playing on the structure for tax optimisation. Secondly, their asset allocation is heavily tilted towards real estate and debt.

When this happens, they are typically not invested enough in equity. We believe 12-18 months down the line, we would see a significant reinvestment risk in debt as an asset class. Many clients have not considered that as a risk in their portfolio right now.

As for real estate, there is heavy reliance on physical assets to create wealth. While it was good in recent past, it may not hold good going forward.

This is because of two reasons — this asset class is considered to be reasonably upward in terms of price movement, but it may not go up because there is lack of liquidity clearly visible in the market; secondly, illiquidity risk which it brings to the client portfolio has to be seen with some premium and that premium may not be there anymore.

So heavy tilt towards debt and real estate needs to be corrected at some stage and it won’t be a bad idea to take exposure to equity. Our house view is that we already see some early signs of revival, to get established in terms or numbers, it may take another three to six months.

But we believe that we have taken some positive turn that should reflect in the market in some stage.

So are your investors required to shuffle between debt, equity and real estate alone? What are their other options?

I believe that while these may be only three asset classes, they can be played in a very different way. When we talk about equity – it can be played in listed equity, within that we can look for frontline /mid-market equities; you can go for international equities; you can also go for growth equities through private equity, venture capital or seed investment route.

Given that we deal largely with business families of which many of them are ultra high net worth, for them investing in equity through growth or seed capital could be a good option.

Wine and art investing has taken off quite a bit among HNIs…

These are more of passion investments in Indian context than financial investments. We have not been comfortable on art or wine as an asset class in India. Not that these may not be of interest to clients and may not offer returns.

I believe that these asset classes may not be structured in a fool-proof manner for the client to invest in.

And we believe that the interested clients can go directly into this than getting into any kind of a common pool structure because we have seen a lot of issues in the structuring, maintenance and governance of these asset classes.

What kind of real estate investments are HNIs interested in?

Many clients are looking for proprietary deals which can be structured to their needs. While they have been participating to an extent in syndicated deals as well, they have been able to seek bit of customisation and make very specific deals for themselves. Hopefully, once the REIT guidelines get formalised, it could offer little more structure to real estate investment in a common pool manner.

We have been careful although we have invested some of our client’s money in structured debt around real estate.

We have been rejecting nine out of ten proposals not because we are not comfortable with the yield but because of the tightness and governance of the structure. We are not only looking at security being offered but also the cash flow underlying it to ensure repayment.

How has the propensity to pay fee changed in the last few years?

Clients who genuinely have a structured approach to their investments, will always seek professional and structured advice.

If they seek that, they are equally open to pay the fee. In our business we have a separate team focusing only on advisory. We are holding a few mandates where clients are free to take advice from us and execute it wherever they want.

vardhini.c@thehindu.co.in

venkatasubramanian.k@thehindu.co.in

Related Topics
comment COMMENT NOW