One of the few things that interest regular investors is how and where ultra-rich High Net Worth Individuals (HNIs) invest their unlimited wealth. One thing is for sure: these HNIs are one of a kind. They range from business giants and new-age entrepreneurs who make more money to ultrarich professionals whose skills are in high demand and who earn six-figure salaries. And it would be too simple to say that HNIs invest their money in the same way, even though their high yield real estate investment is similar in some ways.
Local and global wealth management industries are going through tectonic shifts because investor habits and market conditions are changing. So, a one-dimensional approach to managing private wealth is no longer enough for HNIs. In addition to carefully allocating their assets, they want financial advisors who can offer technology-focused, comprehensive investment solutions that cover many financial services. The financial services are focused on helping people keep their wealth, plan their estates and taxes, diversify their portfolios, find new ways to invest and give back to the community.
HNI wealth management will always be “customer-centric,” but digital financial services will have an effect on HNI wealth management models in the near future.
Changing the Way HNIs Invest
Wealth management experts have seen clear changes in the way Ultra HNIs invest over the last ten years. They are now putting most of their money into areas like distressed assets, infrastructure and structured credit. They also started using borrowed money in their portfolios. Another trend is that ultra HNI investors are more willing to learn about how investments are made and how the evaluation metrics used to build their portfolios are changing.
The cash flow and lifestyle needs of HNIs have changed, and so has the need to tailor their portfolios and divide their assets in different ways. HNIs are becoming more interested in philanthropy and ESG (environment, social and governance) investing, which are two new trends in Indian investing.
One big change in HNI investment is that they no longer try to “time the market.” Instead, they focus on “long-term wealth building.” In other words, their investment strategy has changed from looking for short-term gains to making sure their money is safe and growing. Because of this, HNIs are now willing to try new ways to invest, but they only do so if the idea fits well with their long-term financial goals.
This change in how HNIs thought about investments quietly led to the need for a new asset class, which includes seed capital investments, pre-IPO investments and growth capital investments. Most HNIs who have made their businesses successful have specialised knowledge in a certain field, like e-commerce or FinTech. They are excited to support new investment ideas with their money and advice.
A big increase in HNI interest in pre-IPOs and IPOs made it hard to get shares in good IPOs because there were so many people who wanted them. So, HNIs invest through Alternative Investment Funds (AIF), which buy into companies before they go public, through Qualified Institutional Buyers (QIB) or through Anchor.
Many Wealth Management firms are quickly building up their skills to take advantage of this chance. They are putting together professional investment teams that can help HNIs with early-stage investments, Venture Capital (VC) funds and new businesses.
Once the favourite investment of HNIs, real estate is now losing its shine, and HNIs are putting little or no new money into it. The move to get rid of cash in 2016 and the start of Real Estate Investment Trusts (REITs) both made things worse.
Industry analysts say HNIs continue to invest in India. To accommodate increasing investor needs, the Indian market must expand and deepen. India needs global best investing practises. To accommodate HNI’s wealth and its growing hunger for other investment classes, new investment channels must be established.
In India, a nation prone to inflation and currency shocks, financial products may be built around these risks. As Indian investors age, demand for yield-based and inflation-protected financial products rises, as in the West.
Indian HNI wealth management is poised for expansion. Digitalization, adaption to evolving investor habits and the introduction of additional value-creating investment outlets, from early-stage investment vehicles to philanthropic and ESG, will provide a ‘one-stop shop’ investing experience for HNI clients.
Wealth management faces exciting times. It would be terrible to see conventional wealth managers vanish in the coming days.