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Where to invest? Super rich betting on equities, staying away from real estate

Equities remain the most favoured asset class despite high valuations. However, the extended sluggishness in the property market s forcing many wealthy families to trim down their direct exposure to real estate

Where are India’s wealthy families investing their wealth? Equity remains the most favoured asset class among ultra-high networth individuals (UHNIs) while direct investment in real estate is losing favour, according to wealth managers handling money of the super rich.

The extended sluggishness in the property market is forcing many wealthy families to trim down their direct exposure to real estate. Instead, UHNIs are investing in the sector through real estate funds which are giving them decent returns.

“While investment mix differs from family to family, the general trend is to park at least 50 percent in equities for the long term. Another 10-15 percent are investing in private equity. The remaining is spread among real estate and other asset classes” Rajesh Saluja, CEO and Managing Director, ASK Wealth Advisors told Moneycontrol.

ASK Wealth Advisors, an independent wealth advisory and family office firm that works with HNIs, currently manages assets worth Rs 20,000 crore. Family offices are private advisory arms who manage wealth of UHNIs.

Saluja said the wealthy investors feel large exposure to real estate can be a drag on their portfolio. “Some years ago, UHNIs across the country had 70-80 percent of their money invested directly in real estate. However, in recent years they have realised that too much exposure to real estate may become a burden as it might create liquidity issues,” he said.

Instead, they are investing in real estate through dedicated funds created for the purpose. “For some years now, UHNWIs money is in being invested in real estate through Real Estate Funds. Through this route, we have raised Rs 4500 crore in the last 7-8 years and given returns of 20-25 percent every year,” Saluja said.

Saluja explained the money collected in the funds are invest in projects at the land stage (prior to start of construction) by creating a special purpose vehicle (SPV). “We have taken equity in the projects through these SPVs in top-notch projects in 5 cities - Mumbai, Delhi, Pune, Chennai and Bangalore. As per agreement, we have the first right to exit. We exit when we get a decent appreciations. Until now the investments were in residential project, but we are seeing good opportunities in commercial real estate also,” Saluja said.

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Munish Randev, Chief Investment Officer, Waterfield Advisors, said that besides traditional asset classes, all UHNI clients are developing an appetite for alternative investment as an asset class. “Almost all our families have exposure to the alternate space via venture capital funds, unlisted equity investments, hedge funds etc,” Randev told Moneycontrol.  Waterfield Advisors, provides family business sdvisory services to UHNW families. The company has recently crossed USD 1.7 billion of assets under advisory.

Randev said through equity markets are ruling at all-time highs, it is not leading to a change in exposure to stocks as an asset class. “The current valuations in the equity markets are surely high. However, this does have an effect on our overall equity exposure in the portfolio,” he said.
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