‘We are seeing a lot of demand for alternatives in smaller cities’

What is the new ownership structure in Nuwama?

In 2021, Edelweiss sold controlling interest in the wealth management business. So, 56% stake is now held by private equity fund PAG. Edelweiss today holds a 44% stake.

What is the story behind the name ‘Nuvama’?

So, ‘nu’ means new and ‘vam’ in Sanskrit means wealth and fortune. We are calling ourselves a new way of looking at money and luck.

Can you take us through the wealth management journey?

Investment banking was one of the initial businesses created by Edelweiss in 1996–97. Soon after, there was the institutional equity business which was built to meet the needs of institutional investors in the Indian markets and then derivatives in the early 2000s. Hence it was important to specialize in derivatives, which are part of the capital market business today. The journey of money management started around 2010 when some of us got into it. We’ve grown that business, which is almost 2.3 trillion today in terms of client assets.

When I started my career, I never thought that we would reach here. But all this changed; Wealth was created in India and the size of the industry doubled approximately every five years. And, over the years, we have seen a change in customer needs, aspirations, portfolio and allocation.

How have customer needs changed over the years?

In 2015, we were only 10,000-odd crore Assets Under Advisor (AUA). When we started in 2010, initially the pace was very slow. We were all still figuring out the customer value proposition, which segments would grow, how we should build our products, our technology etc. And the team was also very small at that time. Till 2015, we were still a small team, but we had built a huge base. At that point, if you had asked me would we be 2 trillion in assets, I might not have said. But our aspiration was to grow.

Till 2018, we were managing 1 trillion assets. We have seen a lot of wealth creation. Equity markets had performed exceptionally well between 2015-2018. Many companies also got listed on the stock exchanges. During that phase, we saw early interest from our customers in a very diverse range of products. Some clients asked us if we can give them a private equity product to participate in these so called unicorns in India. Some clients wanted to participate in infrastructure, real estate or yield oriented products. So, the product choices, the portfolio choices started changing and the scale of the portfolios also got much bigger.

In addition, the spectrum of customers changed. Due to the huge amount of wealth created through ESOPs (Employee Stock Options), a lot of professionals like CXOs, CEOs etc came in. Hence, we have designed a great product proposition from Aesop for such customers.

Would you say the fastest growth occurred during this period?

Yes, 2015 to 2020 was one of the fastest periods of growth. A lot came together. The economy was doing well, the markets were doing well. There was a lot of financialization of money. A lot of wealth creation was happening, Esops were happening, IPOs were happening. So, I think a lot of tailwinds came together.

We have also invested in training, development, technology and manufacturing of products. Now, what’s more interesting is that 30% of our new customers are coming from outside the top-10 cities.

Can you share the broad asset allocation mix of your clients across various asset classes?

Every client is very different. Therefore, it is difficult to generalize. There will be portfolios that are 100% fixed income and portfolios that are 100% equity. So, I think it’s unfair to generalize and say that this is what a typical customer looks like. But I can tell you that client portfolios continue to have a large allocation to fixed income, followed by equity — it can be direct, as well as managed products — followed by options. In between, there will be some structured products, and probably some other solutions as well.

What is the focus of your asset management business?

The focus of our asset management business is to provide clients with solutions for their unmet needs. There are four broad categories of needs that are not resolved for the customer. One of them is the post-tax return. The problem in India is that in a country with high inflation like India after tax the yield solutions are very limited. Solutions that give you high post-tax returns are quite limited. Many products that were supposed to be delivered didn’t. Or, as an investor, you take on too much risk for too little incremental yield. Yield is a big unsolved problem.

To overcome this problem, we can use many types of products. There is commercial real estate, which can give you 14-15% pre-tax, post-fee yield. One can look at credit products of residential real estate, or even market linked debentures. We are trying to solve it and working on yield-product. We have also recently launched a Venture Debt Fund.

Another big problem is volatility. Volatility appears in a lumpy form – over a very short period of time, but in a lumpy form. What happens is you build up your equity portfolio and it compounds at 12-15% over three-five years. But suddenly a big event happens, and you end up losing 30-35% of your portfolio because you don’t have a strategy to manage that drawdown or risk. So, volatility affects the client, it affects the results, it disturbs or destroys the compounding cycle. It also hurts people who are dependent or planning life-events around that development or that compound. We already have a product that aims to solve this problem by using derivatives to hedge portfolios against volatility.

What are the two other unsolved problems?

The third unresolved issue is that of access. Check out our Private Equity Markets. Hence, the private equity investment capital in India in the last 10-odd years is around $250 billion. This is actually bigger than the inflow of FPIs (foreign portfolio investors). But a small portion is available for Indian customers. All this $250 billion is from foreign funds, foreign pensions, large endowment funds. So, in a way, India’s best new age companies are not owned or accessed by Indians.

We are very active in this space. We have launched two private equity funds in the last few years which have done very well. We recently raised money for the third fund.

The fourth problem we are trying to solve is diversification. In the Indian markets, there are mainly four asset classes for the customer- real estate, gold, fixed income and equity. All these are usually kept in the same currency. is that fair? Should there be more asset classes available? Should there be more diversification available to our Indian customers? I think the answer is yes. So, we are trying to fulfill all these needs.