Where Do Millionaires Invest? The Two New Trends That Edelweiss Wealth Has Spotted

Two of the new investing trends among India’s super rich are increasing allocation to private markets or unlisted companies and international assets, according to Edelweiss Wealth Management.

The firm is seeing serious allocation to private markets, said Alok Saigal, president and head of private wealth, Edelweiss Wealth Management, which manages money for ultra-high-net-worth individuals, family offices and those with surplus of $5 million and above.

Nine out of 10 promoters are investing in private markets compared to only the “very, very rich” a few years ago,” Saigal told BQ Prime’s Niraj Shah in the new series ‘Where Do Millionaires Invest?’ A lot of these ultra-high-net-worth investors have not just contributed money but are also active board members, he said.

The second big change is international investing, which was non-existent a few years back, said Saigal. And the ultra rich not only invest directly in stock but also through structured products—instruments where value is linked to underlying assets, he said.

Their clients also catch the trends very early, he said. “If you see the data from November-December onwards to as recent as now, people were not very active in investing.”

That's the period when equities have been volatile, first because of valuation concerns and then global inflation and uncertainty amplified by Russia's invasion of Ukraine. The benchmark Nifty 50 has fallen nearly 13% so far this year.

According to Saigal, as long as clients identify the money’s end use, market gyrations will not lead to massive losses. And sticking to that path is one of the core duties of any investment professional, he said.

Edelweiss Wealth Management advocates an allocation of 40% to equities, 40% to fixed income, with 12-13% in gold and the remaining 7% in international stocks. Of the portion set aside for equities, Saigal said 85% is in large caps and 15% in mid caps, with no small-cap exposure.

The firm also follows need-based asset allocation. The idea is that none of capital for any of the needs of a client should come from the invested funds, but from the returns or cash flow from the portfolio.

Edelweiss Wealth Management also helps clients invest in new ideas or businesses, Saigal said. Whether the money that the firm takes care of is for high growth or for preservation depends on what the client mandates, he said.

Fixed Income

The firm’s stance is to stay invested in fixed income but not to buy duration or debt for a particular duration as it wants the rates to stabilise. Edelweiss Wealth Management asks clients to invest through a lot more innovative instruments which give better post tax yields.

Any investment in fixed income results in the client getting charged the full tax, said Saigal. Hence, real estate and infrastructure investment trusts and structured products are some of the ideas that offer better post-tax return and liquidity, he said.

“If you look at NTPC tax-free bond that's trading around anything between 5 or 5.20% on a tax-free basis, and you have an ETF called the Bharat Fund ETF, which with similar maturity is trading at 7.50 upwards,” Saigal said. “Even if you do the taxation and indexation, you still have a 90- to 100-basis-point arbitrage.”

Real Estate

In the last one year, the rich have bought real estate for own use and also for investment, according to Saigal. Edelweiss Wealth Management has not seen the trend reverse because real estate also went through a 10-year lull with demonetization, GST and various issues plaguing the non-bank lending space, he said.

Within Equities

A quarter ago, Edelweiss Wealth Management went underweight on small caps, said Saigal. The firm is not going ‘overweight’ on equities at all, but if Nifty 50 falls to around 15,000, odd levels for the Nifty, then Saigal believes that they are going back into equities.

Watch the full conversation here: