Hrishikesh Parandekar, CEO & Group Head, Broking, Wealth Management, & Asset Management, Karvy talks to Cafemutual about Karvy’s plans and more.
How has 2013 been for Karvy?
Business has continued to be tough. Karvy is now a diversified firm having multiple business segments. On the financial services vertical we have a longstanding franchise in retail stock broking and retail distribution of third party products. More recently we have diversified into other areas like wealth management and alternate asset management. Beyond that we have also developed our NBFC book. We have also built our capabilities in data management which helps institutions and government manage data. Given the diversified stream of revenues we have managed to achieve reasonable success. The agency (broking, distribution, wealth management) business has been tough. Like everyone else we have been working hard to keep our costs and revenues in line.
What are your plans for 2014?
We are beholden to the markets. We will continue to build our wealth management franchise. While we are not an AMC, we also manufacture our own alternate asset management products like PMS, hedge fund, etc. We also have several products in the high yield debt space. We will continue to innovate on product building space.
Tell us about your new venture - Alternate Investment Trust…. How big is this market?
The market could be potentially very large. The AIF licensing regime has a ‘category III’ which allows open ended broad strategies to be implemented under this particular license. It is loosely now being equated with hedge fund because there is leverage allowed of up to two times of the principal. It is a fairly new concept for India. We have been managing proprietary money for the last two years. We have recently launched the same strategies for outside clients. Our strategy in this product has been interesting and at the same time difficult to explain and educate clients. But we are committed to this product.
What are the aspirations of your ultra-high net worth individual clients? What are their unique traits and what kind of services do you offer them?
Irrespective of the level of wealth, everyone has a similar set of aspirations. It is about setting goals and meeting them. The quantum and nature of goals might vary. At the end of the day it’s all about life stage goals that people are trying to work towards. We offer them a broad suite of products and advice. Our niche is in creating our own products which are unique. Over the last couple of years the investments are going into real estate because equities have been out of favor.
How do you gain their trust?
There is no straightforward approach in gaining someone’s trust. Disclosure is mandatory. More importantly, the products we sell to our clients are the same that I and my family would invest in. That’s the test we always apply. It is about doing things the right way over a long period of time. There is no magic wand for it. You can’t advertise and say that we are highly trustworthy. There is no shortcut.
How do you get new clients?
We don’t advertise partly because our business model is built in a way where we reward people for client acquisition and servicing. Our biggest source like any other advice oriented business is referrals. Beyond that we also make sure that our people are focused on acquiring new clients through other sources. We also do financial planning seminars and corporate events. So it’s a combination of referrals, lead generation for acquisition and a few other channels.
How do you compete with banks which offer private wealth management services since they have a captive client base?
It’s tough. Relatively speaking the easiest thing for a client to be persuaded is to open a bank account as opposed to anything else in non-banking context which is always a product sale which is hard. But having said that banks also have to acquire new clients. It’s not that they are just sitting on a client base. So a combination of good and prompt service, having a product suite which is broader and innovative than what banks can offer is what we have to play with.
In the light of falling commissions on mutual funds and insurance, how have you recalibrated your retail business?
Our team has worked harder to achieve the same results. We have also tended to diversify from being purely dependent on insurance and mutual funds. Frankly, insurance is not such a large component for us. We have diversified and that’s partly the reason that we have our in-house products. If you offer clients a meaningful proposition that gives them a fair risk return trade off, then they are ready to pay for such services. So, our core strategy has been not to depend on one or two products.
How is the appetite for investing in art among your HNI clients?
Since 2007 we have not seen any interest in art among our clients. In the heydays of 2006-07, there were a lot of art funds which were sold without necessarily having complete understanding of such funds. They have not performed well. So these funds seem to have gotten a bad rap because of that. We have not seen any interest from a wealth management standpoint. Obviously, HNIs continue to buy art both as an investment and also to display/consume it.
Do you see real estate investment trust (REIT) becoming a popular investment avenue for investors?
Yes for sure. Given that HNIs and in general people have significant exposure to real estate, it will be a great way to invest money in commercial real estate which today people are unable to do. The only way they do it is to buy big ticket commercial estate and it becomes a yield earning asset. These funds will help a broader set of people to get exposure to commercial real estate market.
To how many clients are you providing family office services? How do see the concept of family office evolving in India?
Family office is a fairly abused term. It has ended up meaning that if a client has large amount of assets with a certain wealth manager then they are designated as family office clients. I have not seen too many examples of true family offices in India. Often I run into clients who have relationship with multiple family offices. It’s a bit strange because by definition you should only have one family office. We have tended to steer clear of wanting to build any large family office platform. We have tended to do it out of the wealth management platform. We have not seen enough appetite for such service. But we do provide customized services to larger clients.
How do film funds work? How big is the film fund market?
A group of people who have experience in producing and distributing films come together and put some money themselves and raise some money from outside investors for a slate of films. This is how films get financed on an informal basis also. Film fund is a more structured way of raising funds. Investors come and finance these films at various stages. This is similar to giving money to a real estate developer for building a slate of projects. The risk is inherent and it is perhaps more risk in film funds because some projects may not get off the ground. There is a fair amount of variability in the success of different films.
We have not sold any film fund yet. It is a relatively speculative investment. We have explored it. We have not felt comfortable with any of them to onboard it.
How does one wealth management firm differentiate itself from others? What is your differentiating factor?
It comes down to saying we’ll provide you superb service along with a product suite that is probably wider than anybody else on the street. But you really have to experience it to believe it. That’s the bane of the financial services industry. It’s really an experiential service.
Is your firm considering to register with SEBI under Investment Adviser Regulations?
Yes, we are in the process of doing that.