As the world braces for large-scale disruptions in the way business and trade are conducted, all is not lost for the discerning investor, says Barclays's Karen Frank
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Even in the best of times, wealth creation is a challenging task. What should investors do when the world is dealing with economic and political uncertainty following events like Brexit and the rising opposition to free trade and globalisation? Karen Frank, head of private bank and overseas services, wealth and investment management, Barclays, tells Forbes India
that she sees the volatility resulting from these developments creating lucrative opportunities to invest in. Edited excerpts:Q. To what extent does wealth management differ across geographies?
There are differences in how people in different geographies approach investments and in their preferred asset categories. Asians, by nature, and Indians, in particular, are still in a wealth creation mode and are far more risk-taking when it comes to investment decisions. Secondly, Indian investors are more comfortable when they are in the driver’s seat when it comes to decision making.
In Europe, a significant amount of money is managed on a discretionary basis, but when it comes to India, the discretionary part will be lesser and the part where the investor takes the decision is higher.
Thirdly, among Indian families, the propensity to look for investments [in businesses] is much higher within the wealth management context when compared to European family offices which are more comfortable with public markets [securities and investments that are publicly available for anybody to invest]. Among India’s wealthy families, the tendency to invest in the private market [private companies, startups, etc, which are not publicly available] is more. It is so, not only because they want to generate more wealth but also because they want to create more businesses. That could be the reason for them to get into these tactical investments from a strategy perspective.Q. What are the typical challenges you face when it comes to maximising returns through wealth management in India?
Most investors in India are looking for higher returns and are open to bigger risks. Here, I am talking about the ultra high net worth segment and not the general investor. In this segment, a significant quantum of investments have happened either in real estate or fixed income options while they are largely under-invested in assets like equities. Most of them, either by design or default, are over-invested in real estate. Given that the [real estate] market is illiquid and there is no exit route, they tend to hold on to the assets—not because they like to do that, but they are forced to hold it. If you look at the portfolios today, they are over-exposed to real estate—directly or indirectly.Q. What about fixed income investments?
Debt is a natural love because most Indians prefer to have a fixed income, as it is a rewarding experience for most of them. The debt market has not only given decent accrual returns but the falling interest rates have also created a good amount of capital gains. After another 50 to 100 basis points reduction, the yields will stabilise and we will see, in late 2017 or early 2018, a huge amount of reinvestment risks building into fixed income portfolios. When the investors get their money back, reinvestment opportunities in fixed income will be far less. They would then have to be content with lower yield or shift their portfolio to growth assets like equity. So it is better to make a choice by design [to shift to growth assets] or investors will be forced to get into it by default when the time may not be ripe. The challenge here is to rebalance the portfolios because the markets are unpredictable and every day we are getting fresh challenges both within India and globally.Q. Do the laws in India come in the way of generating maximum returns to your clients here?
The Indian market is becoming more and more open for global investors. At the same time, domestic investors have been given options to increase their share of global investments. Local investors have liberalised remittance schemes through which a family of five or six members can take out $1.5 million every year and over a period of 3-4 years, it becomes a decent amount to start building a global portfolio. But more often than not, when Indians look for opportunities abroad, it is typically global business opportunities. The Reserve Bank of India allows them to invest in global businesses leveraging their balance sheets. In a way, India is fast catching up with the global markets. There are a few asset classes that are not yet there like trading in foreign exchange which is a popular investment option for global business families. But that is not possible here because India does not have capital account convertibility.
Commodities is another interesting asset class that global families deal in, but it is not yet popular in India, especially among the ultra high net worth families. Q. What about social impact investing? Is it gaining ground globally and in India as an asset class?
It is growing. We are developing specific strategies around that. Today, it goes hand-in-hand with philanthropy and wealth management. There is an increased focus among our clients in terms of not just wealth creation but also what they want to do from their legacy perspective.
In India, we have been trying to mainstream social investing and have been hosting social impact conferences to expose investors to this sector and bring about more awareness. We have been fairly successful in building an ecosystem where we have an active dialogue with our clients. We tell them that social impact investing should not be seen as an alternative to philanthropy but more as mainstream investing.
Q. Protectionism and anti-globalisation sentiments are gaining ground across the world. How do they affect wealth creation?
We may hear certain statements coming out in campaigns, but their translation into policies and how that policy will impact the economy will be different.
We are going to see increased volatility. Volatility inherently creates opportunities. That is anything from markets reacting or overreacting to a specific possibility of a policy or a short-term policy that has been put in place. It is not clear how it [the changes] will play out in terms of changes in factories, import flows and import taxation. In the short term, it makes sense to be nimble, so that when the opportunities come up, you can act quickly. However, never get too far away from the fundamentals.