What are the key trends that you see in the HNI investment landscape in 2024?
One of the key trends we have been observing in the HNI landscape is that while clients’ needs have not gone up that much, their balance sheets have expanded, meaning their assets have increased. This, in turn, implies that the surplus wealth also has increased and, as a result, there will be a bias toward growth-oriented portfolios, and here we are referring to more allocation into public markets, private markets, and international markets.
The second trend is that systematic investments will continue, and in fact, they will increase over some time. Thirdly, the financialization of savings will continue to be the game changer, and investments into equities as a mainstream asset class will continue. Besides equity, investors will also look at higher allocation towards alternate asset classes. As for international exposure, the UHNIs and HNIs will continue to increase their allocation to global portfolios, aiming to diversify beyond India and as a Plan B option.
At the balance sheet level, this segment of clients will revisit their asset allocation, and they may want to relook at their business wealth, property portfolios, and financial assets. This will help them determine an asset allocation based on the balance sheet rather than the recency bias, where markets have done very well, leading to investors’ greed. We expect unlocking value from businesses to continue, bringing more surplus wealth into financial assets.
Could you elaborate on your family office’s strategy for investing in overseas real estate? What key factors do you consider when selecting international properties?
Before I get into the details, let me give you a few examples of why our clients are interested in taking exposure to international real estate. For instance, if our clients wish to get a Golden visa in Dubai, they must invest in real estate. Many UHNIs and HNIs are looking at Portugal as a Plan B Option, and some schemes allow our clients to invest in real estate. However, recently, there have been some changes in the policy, and we need to look into these before considering investing in real estate. In addition, when clients look at citizenship in another country, they will also consider investing in real estate.
Indians are generally very fond of investing in real estate in India, and it can be seen from the fact that after their businesses, they always think of owning a house and buying properties before they venture into financial assets. Hence, overseas real estate comes very naturally to Indians, and so it will be one of the critical asset classes that they would like to build with their overseas portfolio.
What key factors do you consider when selecting international properties?
Managing international properties is one key factor we consider while investing in this space. Specifically, we would look at the trends in those markets, like the demand and supply needs and the potential for returns, along with its connectivity with India. We would also keep a close watch on interest rates in terms of whether they will be coming down or going up, and if the trend is decreasing, then it will positively impact real estate over time.
We would also look at what percentage of their overseas portfolio they are willing to allocate towards real estate as that will also decide the location and the property size they can consider. The other factors are if the property is given on rent or has to be sold later, then what will that region’s exit cost, impact cost, and taxation laws?
How does your family office assess and mitigate risks associated with foreign real estate markets?
We can assess the risk by looking into the law and order situation, their legal system, taxation issues, and the exit options available, along with the impact cost and tax implications in case we wish to exit from the property and get the money back into the country. Along with the factors mentioned above, we need to do all the financial and legal due diligence to assess the risks, and these are the ways to mitigate these risks as well.
How does investing in overseas real estate fit into your broader portfolio diversification strategy?
We have been saying that our clients should diversify beyond India as this is a broader strategy to mitigate the overall portfolio’s risk. Hence, we have been recommending allocation into alternate markets, and real estate is one of the asset classes within this segment.
We are great believers in diversification, and investing in overseas real estate will enable not only geographical diversification but also currency diversification because the value of that property will change in dollar terms or in terms of that particular country’s currency.
In addition to real estate, we also recommend considering REITs and InvIT structures available overseas, as these can also give us exposure to real estate but diversified exposure rather than a concentration on one property. Hence, rather than owning physical property, clients can own units of a fund that invest in multiple geographies or multiple kinds of properties within each domain, such as commercial, residential, land parcels, warehouses, etc.
Can you discuss the importance of local partnerships in your overseas real estate ventures? How do you select and manage these partnerships?
Suppose we have partnered with some firm in Dubai because we believe that real estate is a very local subject. We will not be specialists in a particular market even if we have a generic understanding. Hence, partnerships with the specialists in those markets are a win-win situation because they will know the geography while we know our client’s needs.
How do you select and manage these partnerships?
The experience they carry, their track record, and the comfort that we enjoy when we meet up with these people are some of the significant factors that help us to manage any of our partnerships, and this is no different.
There is a lot of talk about ESG investment. What’s your take on it, and do you consider these factors for your investment strategy?
Awareness of the importance of a better environment is rising, leading to a demand for investments with environmental and social benefits. We focus on ESG-compliant investment opportunities, which have become mainstream in the US and Europe but are still emerging in India. Despite limited ESG funds in India, interest is growing, driven by global trends towards valuing social responsibility and green initiatives. The Indian government’s emphasis on green energy in the Budget 2024 and the goal for Net zero by 2070 highlight the sector’s potential. While our ESG investment strategy is evolving, we recognize the need for further development and commitment to align with these global shifts.
Divorce is another sensitive topic. How do you handle such issues?
It’s a very emotional issue when the divorce happens while the family is going through emotions. We bring in more pragmatism. In such instances, we would draw a comprehensive financial plan that covers their day-to-day needs and create an appropriate portfolio so that their wealth will work for them in the future. We try to optimise the family’s portfolio allocation to minimise the family’s financial burden. As for the family, in this way, the financial burden is taken away, but there is an emotional loss, and time will only heal, but financially, they are secured.
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Padmaja Choudhury is a freelance financial content writer. With around six years of total experience, mutual funds and personal finance are her focus areas.
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Published: 15 Feb 2024, 10:37 AM IST