Where do millionaires invest? Avendus Wealth Management on navigating private markets

Nitin Singh: We simply tell our clients that instead of looking at traditional asset classes, it’s much more important to look at your portfolio, in terms of three pieces.

The first part of the wallet – the safety net – is a wallet that will be protected, even if the world ends, and it will give you income, it will give you a return, it will give you anything. And depending on your appetite for risk, depending on your need for liquidity, that will vary between you and me. Normally, this wallet will never beat inflation because it’s “fill it up, shut it down, forget it, be totally safe.”

The second part, which typically ranges anywhere between 5-20% of client portfolios depending on liquidity needs, is usually the market-linked portfolio.

The market-linked portfolio varies with fixed income, REITs, REITs, mutual funds, common stocks, large cap, medium cap and small cap. But this is where we all spend the greater part of our time saying that if the market offers a return of 6-8-10%, how can I be sure that I am getting 2-3% alpha – which is why you tend to work with Managers, tend to select stocks, … Here’s where everyone’s energy goes.

The third part of the portfolio is the strategic portfolio, which is slightly illiquid in nature, which is usually supposed to provide you with an alpha ratio of 15-18-20-25-30%, which for entrepreneurs includes their shares of the company’s own strategic investments, private equity , venture capital, project debt, real estate.

What we tell our customers is that the first idea of ​​customization between these three groups should be.

Usually, what we end up telling people is that the third group should be anywhere between 20-30% of your portfolio if you are, say, a moderate to aggressive client.

The second thing is that the only thing shaping India today is the digital revolution. We firmly believe that within the next 10 years, this type of value creation will take place in India.

To give you an idea of ​​the past 10 years, I’ve seen nearly $1.5 trillion worth of value creation in the private and public markets.

Prior to that, the number was similar, perhaps slightly lower. Our thesis and our hypothesis is that in the next 10 years, you’re going to see that triple on the back of what’s going on structurally, which basically means you need to have a presence across those two places. A large part of that is what will lead to the emergence of digital businesses. Now, whether it’s private or public doesn’t matter because a lot of these companies will go through the cycle and become public at a certain point in time.

But, as a well-qualified person, as a millionaire if you want to future-proof your portfolio – and I use that word a lot because entrepreneurs understand future proofing – they need to understand how to future-proof their portfolios as well.

To future proof your portfolio, you need to allocate at least 20% to such business over a period of time. If you are at ground zero today, it will take 3-4 years to form but you should. This is what will drive the next level of growth.

The second piece that you tell your clients is that markets are perfect — markets are becoming more and more perfect if you look at generic stocks, if you look at rolling fixed income. Globally, perfect markets only offer you plenty of opportunities to make an alpha.

But you have to get that, you need to have 60-70% exposure to that, but it’s the imperfect markets and the really imperfect opportunities that will give you the opportunity to make the alpha. But you have to have a mix between them.

The third part is that we’re bullish on big cap today, we’re saying to be in your equity portfolio, and to be exposed to 60-70% of big caps. We believe this is a high quality stable income. There’s a great opportunity today to fill your wallet with a good AAA tax-free lien because you haven’t seen those returns, if you want to lock it in and keep it.

We’re bullish on venture debt, which is an interesting category, because if you’re saying there’s pain on the venture capital side of it and if the fundraising cycles are going to lengthen, the cost of raising venture capital is much higher than the cost of raising venture capital and good quality corporate debt can be. intervention.

Therefore, we remain bullish on high-quality digital venture capital and consumer capital themes.

What happened to the pricing perspective in the market is that basically you’ve been down for a year, and you’ve seen a 20-25% drop in prices across the market.

But today, we have raised Rs 8000 crore as venture capital. Of that, only Rs 2000-2500 crore has been posted. The remaining Rs 5,500 crore is still sitting as dry powder to be called upon.

When I talk to fund managers, they tell me two things. The first is that there is greater rationality. They have pricing power. They are looking for higher quality companies. There is more and more emphasis on businesses, on operational excellence and life cycle continuity.

There will be a consolidation over the next year because a lot of companies will end up merging into the market leaders. So, to be someone who starts with the money or gets into the market today, this is a great time. Did you miss about a year back? That’s fine, but for a 10-year fund, it doesn’t matter.