Exploring portfolio-driven solutions for UHNI, enterprises and family offices

The second episode in the series, featured three eminent panelists from Avendus Wealth Management, Arvind Bansal, Head, Products and Advisory; Anirudh Gangahar, Head, Equities; and Shravan Sreenivasula, Executive Director, Investment Solutions Group. Moderated by Prashant Nair, National News Editor at CNBC-TV18, they deep dived into various investment themes and opportunities across asset classes and offered their insights on portfolio-driven solutions for high value portfolios.

The discussion began with Arvind Bansal explaining the contours of private markets from an investor’s perspective. “There are some crucial differences between private and public market investing,” he said. “Firstly, since the access to private markets is limited and not through an exchange, only a few investors and entrepreneurs control the stock. Secondly, there is very little information about private companies in the public domain, making them comparable to highly under-researched stocks of public markets. Thirdly, such equity is relatively less liquid as it is not listed on exchanges and an exit entails finding a buyer. Fourthly, unlike public markets, the documentation is not standardized. So, for instance, in the private space, rights could vary from one investor to another and even between the investors and the company management.” He highlighted that the combination of all these factors made it reasonably difficult for investors to harness private equity opportunities. Nevertheless, while it requires specialized skills, it can be very rewarding.

Moving on to listed equities, to discuss valuations versus future growth expectations, a theme that has been worrying investors in recent markets, Anirudh Gangahar opined, “Markets, today, are not cheap; in fact, they are rather expensive.” Putting it into context, he observed that whenever there was a sharp and sudden fall in markets, as seen in March 2020, wherein indices shed 30-odd percent, there tended to be an extension on the other side as well. He explained further that at Avendus, the approach is to have two broad market views – the strategic or the long-term view and the tactical view.

“Strategically, we’re still bullish on the Indian equity markets due to various policy changes and other fundamental factors. Tactically, however, when we look at current market multiples and the underlying earnings, we see a slim margin of safety in the event of bad news,” he said, adding, “There’s also a big question mark about when global liquidity will begin to taper, and at some stage when the cost of capital begins to move up, the multiples will not get stretched further.” These factors lead him to expect a severe price correction or, more likely, a time correction and, therefore, a little tactical caution and consolidation seemed in order.

Offering a view on how such public market movements affect private equity, Arvind Bansal suggested, “At most times, if there is a similar listed company available, a private company is benchmarked to it. Depending on the demand and supply situation, it could be valued at a premium, at par or at a discount. So, if public markets are going up, one should assume that private market valuations will also rise.”

Shifting gears, the discussion moved to recent trends and exciting opportunities in the public markets space. Shravan Sreenivasula explained, “Over the last two to three years, the core-satellite investment approach in equities has undergone some changes. The core has further broken down into core-beta and core-alpha.”

He pointed out that about 25-30% of portfolios were being allocated to ETFs. “There is space for smart ETFs, which are coming up, though they are still at a nascent stage,” he said, adding, “The belly of the portfolio is usually in multi-caps, both in the PMS as well as mutual fund space.” Where the satellite space is concerned, with exposure to the mid & small cap segments, he observed portfolios migrating to high conviction ideas, with PMS and AIFs predominantly taking up incremental market share in that space.

In the fixed income domain, with yields falling, Shravan Sreenivasula noted that there was plenty of money moving towards absolute return hedge funds. “The absolute return arbitrage space is also looking up,” he said. “Incremental money is finding allocation towards REITs and InVITs as well. Today, about 3-5% of our clients’ portfolios are allocated to REITs and InVITs as they offer a slightly higher return for the risk they carry and, at the same time moving away from the low yields that fixed income products offer.” Another trend witnessed by him is that investors were looking to participate in well researched ideas through structures like market-linked debentures, which are tax efficient.

The panelists further discussed the advancing need for differentiated products and changing investor preferences. Highlighting the innovative trends in the mutual fund, AIF and PMS industry that were emerging to cater to the evolving thought processes of investors, they touched upon asset allocation, lucrative opportunities in current markets, and how they identify winning investment ideas for their clients and keep their portfolios relevant.

The conversation rounded up with the experts sharing how Avendus Wealth Management has stayed ahead of the curve by developing deep insights, made possible by leveraging Avendus’ extensive Investment Banking expertise, its Asset Management lineage, and its Lending capabilities. This has enabled them to conceive theses on opportunities four to five years ahead of time and curate, through research and their wide industry network within the ecosystem, select investment opportunities and productize them by collaborating with relevant partners, to bring differentiated solutions to their clients.