Wealth Man­age­ment: Is your Wealth In Good Hands

Sachin Shah, Fund Man­ager, Emkay In­vest­ment Man­agers Ltd, shares some cau­tions and ad­vice on how to se­lect the right wealth man­agers.

MillionaireAsia India - - Contents -

Port­fo­lio Man­age­ment Ser­vices (PMS) have now gone through a full life-cy­cle of busi­ness. The ser­vice, which be­came very pop­u­lar in their hey-days from 2005-2007, have gone through con­sid­er­able amount of con­sol­i­da­tion in the last five to six years since 2008-2009. Quite a few port­fo­lio man­agers have sur­ren­dered the SEBI li­censes and for many of them PMS is no more the fo­cus area of their busi­ness op­er­a­tions. Quite a few in­vestors have also ex­ited from PMS. It is my be­lief that one of the rea­sons for in­vestor dis­ap­point­ment is linked to miss-sell­ing (like many other fi­nan­cial prod­ucts) of PMS to wrong pro­file of in­vestors. PMS is typ­i­cally for HNI families and large Cor­po­rate in­vestors, whereas in the years of 2005-2007, many Port­fo­lio Man­agers of­fered the prod­ucts to re­tail in­vestors with an in­vest­ment of just around Rs 5 lakhs (the ear­lier SEBI limit, the new limit is min­i­mum Rs 25 lakhs), thereby com­pletely de­feat­ing the real

pur­pose of of­fer­ing per­son­alised and cus­tomised ser­vice to large in­vestors. Per­haps, it is rec­om­mended that PMS should be of­fered to in­vestors having po­ten­tial to in­vest at least Rs 1 crore with each of the port­fo­lio man­agers they are having ac­counts. Only than the Port­fo­lio Man­agers will be able to scale-up the busi­ness and at the same time of­fer per­son­alised cus­tomised ser­vices to the clients (in­vestors).

Ser­vices on Of­fer

Un­der SEBI reg­is­tered PMS li­cense, port­fo­lio man­agers can of­fer three kinds of ser­vices Dis­cre­tionary (with the port­fo­lio man­ager) PMS, Non-Dis­cre­tionary PMS and Ad­vi­sory PMS.

Most of the port­fo­lio man­agers have a few strate­gies run­ning across Dis­cre­tionary and Non-Dis­cre­tionary port­fo­lios. The clients (in­vestors) are of­fered the op­tions of in­vest­ing in var­i­ous strate­gies, de­pend­ing on their pro­file (risk ap­petite, age curve, re­turn ex­pec­ta­tions, goals to be achieved in time frame, etc).

Ex­plor­ing Add-ons

The Ad­vi­sory PMS is some­thing not ex­plored (of­fered) by many port­fo­lio man­agers. This can po­ten­tially be a highly value-added of­fer­ing for large fam­ily of­fices / cor­po­rate trea­suries / FIIs (sub FIIs) / large wealth man­agers / large re­tail brokers etc. Un­der Ad­vi­sory PMS, the port­fo­lio man­agers of­fer non-bind­ing ad­vice to clients and the cus­tody of the as­sets are also not with port­fo­lio man­agers, un­like in dis­cre­tionary and non-dis­cre­tionary PMS, where as­sets (DMAT and Bank ac­counts are un­der the cus­tody of port­fo­lio man­agers).

For Fam­ily Busi­ness

Ad­vi­sory PMS is best suited for large fam­ily of­fices / cor­po­rate trea­suries look­ing to in­crease their al­lo­ca­tions in equities. Due to con­fi­den­tial­ity rea­sons, large fam­ily of­fices and cor­po­rate trea­suries would like to have un­der their con­trol the cus­tody of the as­sets. But they would need the ex­pert ad­vice on pick­ing of stocks / sec­tors for in­vest­ing thru di­rect equities and build the port­fo­lio from their fam­ily wealth. Typ­i­cally, it is ex­pected that fam­ily of­fices / cor­po­rate trea­suries would al­lo­cate Rs 25 crores to Rs 100 crores+ in equities, and port­fo­lio man­agers would de­sign highly cus­tom­ized port­fo­lio keep­ing in back­ground the pro­file and goals of the fam­ily of­fices and cor­po­rate trea­suries. This is where the Port­fo­lio Man­age­ment Ser­vices con­verges in to Per­son­alised Man­aged Ser­vices.

FIIs look­ing to al­lo­cate in In­dian equities can also take the ex­per­tise of lo­cal port­fo­lio man­agers, in­stead

set­ting-up a full-fledged desks and in­cur­ring heavy fixed ex­pen­di­ture for In­dia al­lo­ca­tions.

For Large Fam­ily Of­fices and Fam­ily Of­fices, there are mul­ti­ple ad­van­tages of in­vest­ing through Ad­vi­sory PMS, Highly Per­son­al­ized and Cus­tomised Port­fo­lio Build­ing, keep­ing in back­ground the pro­file and time-spe­cific goals of client. Un­der Ad­vi­sory Port­fo­lio, the port­fo­lio man­agers could be given the man­date of Ab­so­lute Re­turns (preser­va­tion of cap­i­tal) v/s the mu­tual funds where the only man­date is to out­per­form the bench­mark in­dices. For large fam­ily of­fices / cor­po­rate trea­suries, pri­mary ob­jec­tives is Ab­so­lute Re­turns and Preser­va­tion of Cap­i­tal v/s mu­tual funds where in­vest­ing is largely for rel­a­tive re­turns. For large fam­ily of­fices and Cor­po­rate trea­suries it is about build­ing port­fo­lios with blue-chip be­cause having strong fran­chise value and en­joy the com­pound­ing ef­fect of the wealth cre­ation and long-term cap­i­tal gains. This is very dif­fi­cult in mu­tual funds, par­tic­u­larly with the kind of churn­ra­tios they have, try­ing to play the flavour of the mar­kets on fort­nightly ba­sis. The re­port­ing and MIS of port­fo­lios is done on daily ba­sis v/s quar­terly dis­clo­sure of port­fo­lio hold­ings in mu­tual funds. Highly com­pet­i­tive fees and per­for­mance linked fees, un­like in mu­tual funds where in­vestors have to shell out a fixed fee in the range of 2% (ir­re­spec­tive of per­for­mance); port­fo­lio man­agers would charge lower fixed fees and also of­fer op­tions to pay in-line with per­for­mance of the port­fo­lio. Port­fo­lio man­agers could be in­cen­tivised to de­liver Risk–Ad­justed Re­turns un­like in mu­tual funds where some­times fund man­agers take high (un­due) risks to beat bench­mark in­dices. Over­all un­der Ad­vi­sory PMS, a lot can be con­trol / de­signed for Fam­ily Of­fices / Cor­po­rate Trea­suries with the ben­e­fit of ad­vice from Ex­perts for achiev­ing per­for­mances.

Sachin Shah Fund Man­ager, Emkay In­vest­ment Man­agers Ltd,

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