And they are the fortune tellers for the new-generation entrepreneurs. We step into their world of high stakes and smart thinking to get a glimpse of the new economy at work
V Shoba | 19 Mar, 2015
Even among high-profile bankers, they are a rare breed, cosseted in salubrious offices in Mumbai’s Bandra Kurla Complex or in Gurgaon, their chic, polished shoes and business jackets the colour of freshly-inked deals. They turn down interview requests with the severe politeness of someone who matters, and when you do get to meet them, they are hawk-eyed, regarding you as though you were a dubious equity scheme. These are private bankers—investment associates and confidantes of the uber-rich, the men and women whose lives and times fill up newspaper column inches. If word got out that they leaked information about the assets—or worse, the idiosyncrasies—of these social elites, they may well bid goodbye to millions of dollars. “This had better not cost us any business,” warns a corporate communications executive at a leading bank, ahead of a meeting with representatives of its wealth management division. It is not just client confidentiality he is worried about. In this game, both high-paid talent and high net worth clientele are notoriously capricious.
“If you poach my client, I will most certainly try to poach yours,” says a 36-year-old, Bangalore-based wealth manager, let’s call him Ravi, nervously requesting anonymity. Since most clients split their wallet among three or four wealth managers, there is fierce competition to grab a bigger slice of the pie. Three years ago, in the exuberance of ambition, Ravi convinced a software entrepreneur who had been banking with two other wealth managers to invest exclusively through him, and he now manages over Rs 100 crore of his assets. It hadn’t been easy. He had had to hedge his bets when the markets were down, take an online course in moving databases to an internet cloud to advise his client, and even buy vintage car insurance for a relative. “Back then, I felt a little guilty of foiling the others’ game. Now, the economy is poised to revive and there is a warm feeling among private bankers that there is more than enough to go around. I even socialise with my professional rivals,” Ravi says. On some Saturday nights, if you dropped by a glitzy cocktail bar in central Bangalore for a drink, you would overhear them mumbling unhappily about the growing mythology of a banker said to be hogging all the new money in town. Numbers would be brandished like so many foreign- language cuss words, and they would slap each other’s backs, confident of what tomorrow will bring.
“It has been a good year for wealth managers,” says Nitin Rao, senior executive vice-president, Private Banking Group, HDFC Bank. “However, margins are shrinking in this business and managers as well as research teams backing them have to work hard to stay relevant.” Bangalore, the preferred home of first-generation entrepreneurs, is one of the easiest emerging markets today, he says. “In the past three years, we have gone from having five relationship managers in the city to 25.” HDFC handles about a couple of thousand accounts in the Rs 1 crore to Rs 5 crore segment and a few hundred in the Rs 5 crore to Rs 20 crore bracket. This is but a drop in the ocean.
Private bankers in India manage no more than $50 billion (Rs 3 lakh crore) in assets and this is estimated to be less than 5 per cent of the size of the overall Indian market. According to the ‘Top of the Pyramid’ report commissioned last year by Kotak Wealth Management, Kotak Mahindra Bank’s private banking arm, there are over 100,000 ultra HNIs—individuals with a net worth higher than Rs 25 crore—in India and their numbers are projected to triple to 343,000 by 2018-19. Their combined net worth, now estimated at Rs 104 lakh crore, is expected to cross Rs 408 lakh crore by then.
In the wake of a halcyon bull run and the growing fortunes of first-generation entrepreneurs and Employee Stock Ownership Plan (ESOP) holders, banks and wealth management firms are anticipating steady growth in this segment. Citibank, one of the first to launch wealth management services in the country in 2008, says its Citigold retail segment—for customers with over $100,000 in assets—and its private clientele of multi- millionaires are growing at close to 30 per cent per year. “We have 300 relationship managers and we are constantly looking to hire more,” says Ashish Mehrotra, managing director and head of retail banking at Citibank. “We are among the leading players in this space and the size of the assets we manage is admittedly disproportionate to the branch network we have.”
The nouveau riche do not come with the sort of unworldly fortune that the paparazzi swoon over. They don’t belong in the glittering roster of private clients who will ring their bankers with requests to import a Ferrari or buy a private island in the Caribbean. In the rigidly stratified world of private banking, first-generation HNIs are a little lower down the food chain. They hold their money close and are incredibly smart and ravenous for information. “In less than 10 minutes into the first meeting, they would have done a due-dil on you,” says Anshu Kapoor, head, global wealth management at Edelweiss, a financial services company that manages Rs 14,000 crore in wealth. Four years after the wealth management arm of its business was set up, most of Edelweiss’ clients are new-generation entrepreneurs, internet millionaires, ESOP holders and top corporate executives.
The startup boom over the past couple of years has seen many mergers and acquisitions and piqued the interest of global giants for the first time. Three Indian companies made history, with Zipdial, a Bangalore-based mobile marketing firm, picked up by Twitter, Little Eye Labs, a company that builds app analysis tools, by Facebook and Bookpad, which makes viewing and editing documents easier, by Yahoo. The poster boys of the Indian e-commerce industry, Flipkart—which declined to comment for this story—and Snapdeal, have acquired about a dozen startups between the two of them, including Tripoto, TinyOwl, Bewakoof, Gigstart, Touchtalent and SpoonJoy. The trend, though nascent, has resulted in founders exiting with a small fortune at a very young age. Other, more mature startups have raised multi-million-dollar funding in various rounds, during which early-stage investors have exited. “It is an encouraging development for the economy,” says former Reserve Bank of India Governor Bimal Jalan. “There is access to capital and to reliable and transparent funds, resulting in a broadening of the financial platform.” The wealth management sector, says Jalan, will be among the beneficiaries of this new money.
With a host of technology companies now preparing to go public, India will have many more billionaires in a year’s time, says Anas Rahman Junaid, the publisher of Hurun Report India. Junaid also notes that investors from India haven’t yet made it to Hurun’s rich list. “In developed countries, investors like Warren Buffett top their respective rich lists. In India, this is yet to happen. We are hoping to add to the rich list of 230 another 200 names, some of whom will be investors,” he says.
From creating Google alerts on his top clients to remembering their anniversaries, Anshu Kapoor, who has also worked at Merrill Lynch, traces the contours of their lives like a fly-on-the-wall private detective. “Anything about them that makes news, I want to know immediately,” he says. “We spend days getting to know each of our clients. We ask them hundreds of questions, but also do our own research— we should know which school his kids go to and what kind of music he likes. Nothing can be left to chance.” One cannot possibly claim to coach Sachin Tendulkar, Kapoor admits, but perhaps a Gary Kirsten can give him friendly advice that he will find useful. “You don’t have to hit every ball. This isn’t T20, it is a test match,” he says, stretching the cricket analogy. He is referring to the National Spot Exchange Ltd scam of 2013, where thousands of investors who bought commodity futures on the platform were duped of Rs 5,400 crore. Edelweiss had advised its clients against the risky investment that promised high returns.
The jollity of a social dinner and a game of golf on weekends, or the offer of a credit card so exclusive that fewer than a hundred people in India have one, may sound tempting, but HNIs continue to value trust over perks. Krishna Kumar, a serial entrepreneur from Bangalore who runs Simplilearn.com, a startup in the training and certification sector, founded and successfully exited two other companies—TechUnified, a mobile banking and telecom technology company, and Zyoin, a recruitment portal—but he wasn’t as lucky with the financial markets. The 2008 downturn alerted him to the wisdom of trusting his wealth manager. “I have known him since 2007. When I lost money after making some investments against his advice, I realised the value of an expert. It took a while to build trust, but since then, I haven’t needed to look elsewhere,” says Kumar, who stood by his relationship manager as he jumped from Société Générale—it shut down its Indian private banking arm—to HDFC, and finally, to ICICI. “Today, all banks offer all products,” Kumar says, “The differentiator is the individual and how much he understands you and your risk profile.”
Once a month, Kumar’s banker schedules a tête-à-tête with him to discuss his portfolio—packed mostly with debt funds, fixed deposits and some equity. Kumar likes to play it safe with this pot of money, but only because it is a useful counterweight against his early-stage investments in startups. “About 25-30 per cent of my money is used to fund new companies and ideas. Whenever I hear about a promising startup through ex-colleagues or investors whose judgement I trust, I am open to chipping in Rs 10 lakh-Rs 25 lakh,” he says. “Even if a couple of the companies are successful, they will return the investment.”
Most first-generation entrepreneurs are split-personality investors, toggling between the safety of traditional assets like debt and real estate and the excitement of seed-funding a business. Angel investing, mainly in technology companies, is what excites e-commerce entrepreneur Praveen Sinha the most. The Jabong co-founder and managing director says his wealth managers, whom he sought out for the first time last year, don’t always agree. “Because we work as a team, we are able to impress upon each other more often than not. It really helps to have someone who has an end-to-end view of my existing and planned portfolio,” he says. Sinha, who has invested undisclosed sums of money in several startups, including his wife’s online art gallery, is said to be in talks with two other companies in the areas of robotics and healthcare.
Trust and talent—the two cornerstones of private banking—run in short supply in the Indian market, which often finds itself riven by fraud and driven by transactional gains. According to a headhunter, there are fewer than 200 trained wealth managers in the country who are equipped to handle ultra HNIs. Salaries have gone out of whack, starting at Rs 50 lakh a year and sometimes exceeding Rs 1 crore. Institutions, therefore, see value in grooming their relationship managers—at Citibank, for instance, they go through 34 certifications before they can talk to a client—from the ground up.
When Barclays launched its wealth management division in India in 2008, it hired retail bankers and executives from asset distribution backgrounds, only to find that they had no impact on ultra HNIs. “With an HNI, the intellectual engagement has to be far superior than what you are used to in product distribution,” says Satya Bansal, CEO, Wealth and Investment Management, India, Barclays. So he put together a team of investment and corporate bankers and wealth managers who fed off one another’s strengths. “A large amount of wealth in India is still locked in families that aren’t investing much outside their core businesses. First-generation entrepreneurs will drive the market. This is where the excitement and the growth lie. Just selling them a grab-bag of products is not going to cut it anymore. The private banker must also become a gateway to investment banking and explore private equity avenues for the client,” Bansal says. Barclays has 40 relationship managers handling over a thousand accounts across India, and it is looking to hire more, especially from abroad. With a global network, the bank has always catered to NRIs, but in the past few quarters, foreign nationals have also shown some interest, says Bansal. “We are seeing traction from non-Indian family offices that want to invest in public and private markets in India or are exploring joint ventures.”
Private equity activity in India grew 47.3 per cent to touch $10.9 billion in 2014, a four-year high, according to a report by Chennai-based research firm Venture Intelligence. The year saw 436 deals, with just e-commerce companies receiving funding of almost $4.1 billion across 106 deals. “Wealth managers don’t yet understand private markets,” says former Infosys CFO V Balakrishnan, who, like many of his ex-colleagues, actively invests in startups. Balakrishnan has declined any number of offers to manage his portfolio. “I am old-fashioned,” he says, laughing. “I tell them, even if I was to lose money, I’d prefer to lose it all by myself.”
There is a school of talent outside India that is waiting to return home, says Rajesh Iyer, executive vice-president and head, Investment Advisory Services and Family Office, Kotak. And it may well get first-generation wealth creators to jump on the bandwagon. “Just as you had bankers who were eager to come back during the Lehman crisis, there is now a surge in interest in the Indian wealth management market. Even if these bankers don’t bring their own clients, they have experience working in regulated markets and that is a big plus,” Iyer says. Kotak manages the assets of 44 of the top 100 families on the Forbes India Rich List, 2014, besides helping some of them with succession planning and drawing up family charters.
Iyer divides the short history of Indian wealth management into two eras. “The pre-Modi era was characterised by uncertainty in the economy and a lot of exits and stake sales, especially in pharma, engineering, auto ancillaries and chemicals. After Modi, people who made money are looking to get back into business. There aren’t so many transactions as before,” he says. “The growth in the sector is largely because of markets looking up. Now, it is important that private bankers constantly innovate, catch trends early and offer ever-new products and investment strategies.”
Pradyumna Jajodia, A 38-year-old based in Mumbai who runs an oil and gas exploration business, was disaffected with the ways of wealth managers who were advising his family. “The integrity level is very low in India. And many of them are not sophisticated enough,” he says. “The modern investor is looking for someone to cut through the noise of all the information available to him, someone who will try to understand and profile his risk appetite, cash flow requirements and expected returns.” For a full year after he was introduced to Edelweiss, Jajodia promised the firm no money of his; instead, he asked its managers to build an asset allocation model. “We went back and forth, met often, studied different asset classes and simulated the results. Then Edelweiss came up with the idea of investing in non-convertible debentures that were a great fit in my portfolio,” Jajodia says. “I believe in the power of compounding. I want a positive return every year, even if it is small. It is important that my wealth managers understand this.” He is now an active investor with 60 per cent of his wallet managed by Edelweiss. He meets his relationship manager at least once in 10 days, if only for a cup of coffee. “I just want to get a download of what is seeing and hearing from global markets,” he says.
Some private bankers confess to emulating their illustrious clients to impress them. “I wear a Hublot watch and Italian loafers when I meet someone important, someone well-travelled,” says a Delhi-based relationship manager with a Non-Banking Financial Company. But increasingly, he finds himself meeting more parsimonious clients. “They may have only just come into a lot of money and don’t feel the need to flaunt it,” he says. Often, it is when a client is in the comfort of his home, dressed perhaps in shorts and a T-shirt, that he takes important decisions. A young relationship manager with a foreign bank in Mumbai recalls a watershed moment when a client first invited her home. “His offices are in the suburbs, a two-hour drive away, where we would normally meet. One day, he asked me to come home, and that is when the trust deepened,” says the banker.
The most suave bankers only talk elliptically about their clientele, throwing in words like ‘compliance’ and ‘non-disclosure’ that are so important in this impenetrable industry. Theirs is, after all, a small world. “Clients may have intersecting social circles. If you are invited to a client’s daughter’s wedding, you are likely to meet your other clients at the gathering,” says Ami Desai, 31, a Citigold Private Client relationship manager. In a pink shirt and pearls worn under her standard-issue banker’s suit, Desai exudes an air of self-contained confidence. Forty per cent of Citigold’s private bankers are women— one of the highest sex ratios in any wealth management team in India. “Women have a higher emotional quotient, which may lead to a faster connect with a client,” she says. “For instance, entrepreneurs who have built businesses from scratch like to talk about the challenges they faced along the way. They relate to you closely when you recognise their efforts.” For every friendly client, there is a legion of inscrutable characters. “New-generation HNIs are careful about the information they share on their business, such as capital infusion. They are usually very private in their financial dealings,” Desai says. But good wealth managers, like good novelists, are astute practitioners of their craft, deriving material from real conversations and refusing to be stumped by anyone who seems to defy characterisation.
Clearly, a private banker cannot stick to a script or become blinkered. Desai coached a client’s daughter in the basics of investment upon his request. Kapoor rang a client at his hotel room in Singapore to urge him to move on a rare real estate deal in central Mumbai. And Ravi, yes, him of the collectible car insurance fame, routinely picks up busy clients from the airport so he can get some face-time with them. There are other secrets that must go nameless and they are the stuff of Bollywood dreams—a father who wants to expunge one of his children from his will; the miraculous rise of an infotech company that was almost sold for Rs 200 crore but went on to be valued at Rs 950 crore a year later; an entrepreneur’s puzzling preoccupation with an idea for a video game that will change the world. A few years ago, not many bankers would have indulged these whims.
“India has started to appreciate young entrepreneurs who are creating wealth for themselves and their investors. There is much more respect today for these self-made men and women,” says Jabong’s Praveen Sinha. It is a long haul to the top, fraught with unknowns, both for the newly rich and for their bankers. But the climb has begun.