Tell us more about the impact investing. Are investors keen to invest in socially responsible projects?
I think it is a growing sector and very important sector for a country like India. You are seeing the difference between donations and capital invested for making a return. Traditionally, philanthropy is always seen as donation where you may or may not know impact of your donation.
Now, families are getting conscious of the impact of their investments. So families are looking at investing in social enterprises that have a wider impact on the community. They are looking to invest in ‘for profit’ social enterprise rather than ‘not for profit’. So there will be a pool of capital which is not for profit and some part of it would be for profit.
Where are these investments going?
Typically, a lot of money goes into education and healthcare. We are seeing some interest in water resources because that is a big issue for India going forward. But there are a lot more areas like arts & culture, governance and panchyat governance which need more attention.
Is getting the right talent a challenge for you?
This is one of the biggest challenges of this industry. You are expecting the individual who deals with a family to be conversant in diverse areas, which is a big task. We hire senior private bankers who over a period of time graduate to become family office directors. I think you develop expertise only with experience and it is a natural career progression for seasoned private bankers. Instead of getting stuck as private bankers they can aspire to grow with their clients.
Is your current role more challenging than your previous role as a banker?
Yes, because you see a lot of dynamics in this business and it is not transactional. Everything hinges on understanding the psyche of clients. Every family is unique. You are often talking to multiple generations on various issues. For instance, in one family we are managing the family office of the patriarch, managing the corporate treasury of the son and also the trust and advisory work of another branch of the same family.
A lot of money is being poured in ecommerce companies by private equity investors. Some are not convinced with the valuations and the ability of tech companies to generate returns for investors for a foreseeable future. What are your views? What are you recommending clients in the private equity space?
We see more interest in venture capital in the family office space than in private equity. Families are a lot happier to make bets early and exit when the private equity players come in because they are not looking at an exit through IPO.
Family offices take a substantial stake in a company at a very early stage and exit or dilute early after getting a value from their investment. In venture capital, we see a bias towards e-commerce. The question is how do they participate in this market? Not all family offices have the in-house capability to evaluate e-commerce ventures so they go through the fund route. If they put in substantial capital in that fund then they get co-investment rights.
Our recommendation to family offices is that if you are not sure of this space, then it is better to invest in a fund.
Do you see the need for family offices in tier 2 cities?
The ultra HNIs are growing and mushrooming across India. The metros are overbanked. The concept of advisory is not so developed in markets like South and even in Delhi. Since Mumbai is financial capital you see more new products and services offered to customers. There is a time lag in these trends to reach non-metros.
The challenge is how do you service non-metro clients? Our model precludes us in many ways from being able to manage and service that client well. So we can’t onboard clients if we can’t manage them well.
Is scaling up a challenge for firms like yours?
We will always be a boutique player. We will never be able to have the reach and distribution network of a bank or an NBFC. You need investment in brick and mortar at least at the servicing level for this segment. You can cater to other segments through technology. But for ultra HNI segment you need a mix of both technology and touch and feel. You need to be available when the family needs you.
How do you grow revenue from the same set of clients?
Our revenue comes from multiple sources. It’s not just investment management fee. We provide a host of services. Some services are engaged after a period of time. We charge an advisory fee which is annuity. We also do corporate advisory transaction where we charge success based fee which provides us lump sum revenue. So what we want is more revenue from annuity and less from lump sum because that’s when you become a more valuable business.
With real estate going through a slowdown, what are you recommending clients in this space?
We have seen very good returns in real estate over the last 5 -7 years. I think because of higher inflation and high interest rates, we have seen more money move towards physical assets. I think that may change. The dependence on real estate is coming down. We are seeing a lot of families monetize their real estate assets to put it in financial assets. You’ll probably see that shift a lot more over the next three years.
Do you think you have an advantage over banks in terms of winning the trust of clients?
I think every player has its own space. You have to transact through someone and only the banks can provide it. If you are a distributor then be honest about it. There’s nothing wrong with that business model. The problem occurs when either advisors try to become distributors or distributors try to become advisors. So don’t try to play both sides. I think both models have their merits. A distribution model is needed to reach out to masses while an advisory model works in the ultra HNI space. Your model depends on the client segment you are catering to.
One book which had a great impact on you?
It would be Blue Ocean Strategy authored by Renée Mauborgne and W. Chan Kim. It makes you look at your business model very differently. The blue ocean strategy tells you about business model innovation. In the red ocean, people compete on margins without offering any differentiation.
At Waterfield, we are trying to cover that blue ocean in the ultra HNI advisory space which doesn’t exist. We don’t want to compete in the red ocean.
Your future plans for Waterfield Advisors…
We want to expand our domestic presence. I would like to take the concept of family office to smaller markets because I think there is a genuine need of advisors who have no conflict of interest.
This is the second and concluding part of the interview.
