Ultra HNI Investments in India: The league of Ultra HNIs is a diverse lot and have varying investing approaches. From scions of business to the new-age entrepreneurs who have built valuable businesses, their investment decisions are as varied as their business ventures. It would be a gross oversimplification to assume that they all invest in the same avenues; however, there are similarities when it comes to their investing modus operandi.
Along with economic and market cycles, the preferred asset classes also may vary. About a decade ago, real estate was a favourite for investors. Following the observance of the lack of returns from this asset class as well as under-performance for a prolonged time, there emerged a shift in preferences. Recent reports found that the HNI and ultra HNI segment are increasingly opting for financial assets, over their physical counterparts. This is also driven by ease of administration and an increasing lack of interest in the next generation for holding and maintaining large real estate holdings.
Such a trend is partly structural given the steps taken to formalise the economy and partly cyclical given the performance of the underlying asset classes. Unlike physical assets, financial assets also present the opportunity for ease of operations, as well as lower costs of the same. By using managed funds such as mutual funds for equity, and even gold (through exchange traded fund) this can bring down the cost of investment. Financial assets are also liquid, giving the investor the freedom to sell a financial security in an exchange-based setup, whenever he wants, and at the price he demands. This is in stark contrast to real estate, where liquidity could sometimes become difficult.
Having said the above if the dislocation in prices continues for some time then cyclically some components of real estate like equity investments in housing finance companies, reputed real estate companies, may become interesting options. With the advent of REITs, investors get a new mode of entering into this asset class as well.
According to a “Global Family office report in 2019,” Family Offices are realigning their investment strategies to mitigate risk (45%), increasing their cash reserves, and / or preparing to capitalise on opportunistic events (42% each).” This underlines the fact that Family Offices are increasingly understanding the importance of market cycles and are willing to hold cash for future opportunities. This increasing accent towards capital preservation especially when there are signs of an economic slowdown, validates why the Family office concept has now come of age and has surpassed the product-push approach of wealth management.
There is also an increased focus towards sustainable and impact investing. Sustainable investing has attracted a great deal of attention in recent years – and an equally impressive rise in investment. The family office space is not immune to the attraction of sustainable investing. With sustainable investing, families can invest in line with their values and create significant positive change, whilst also simultaneously generating profit, thereby cementing a positive family legacy and supporting long-term wealth preservation.
Like the sustainability space, impact investing- investing with the intention to generate measurable environmental or social impact, alongside providing a competitive financial return, also continues to grow, with investors of all types and from all over the world now involved. The most common areas of investment are education (45%), agriculture / food (45%), and energy and resource efficiency (43%).
(BY Rajmohan Krishnan, Principal Founder, and Managing Director, Entrust Family Office)