Nikhil Kamath is Co-Founder and CIO of True Beacon and Zerodha.
2020 was a year that the world wanted to forget. From the coronavirus raging across geographies to political fiascos surrounding the US’ strained relations with countries such as China and Iran. People from all walks of life had to make life-changing decisions.
The virus caused a ripple effect in day-to-day life resulting in job layoffs and resource shortages. Therefore, great importance was given to creating a sense of security in terms of the availability of money in an uncertain economy.
The substantial volatility in global markets created a paradigm shift of investment choices in the eyes of individuals and institutions who once believed that they were prepared for the worst.
The consensus with the public in times of distress inclined towards safe investments like gold and cash in hand, and the equity market started seeing a great shift in terms of sectors that were once proven to be more secure and have been known to weather the storm of an economic crisis.
The road for institutions and high net worth individuals
While the losses in the financial market compounded at the beginning of the year and investment patterns of the world changed, we saw the trend for these ultra-high net worth individuals (UHNI) to capitalise on the situation.
Institutions and UHNIs started looking at avenues that wouldn’t be readily available to the regular retail investor but offered an opportunity to gain a significant amount. So, what really clicked with them?
The equity market is by far considered the most historically safe place to park funds due to the usual V-shaped recoveries that follow a crisis, but there was a need for a creative angle:
But with cash in hand being a dire requirement at this point of time, it wasn’t a walk in the park for those individuals who had invested in funds having lock-in periods. Investors had millions locked into funds that had contract-based withdrawal periods exceeding three years, leaving them with no option but to watch them depreciate. Furthermore, the inclusion of management fees made investors realise that they were losing even though the market didn’t perform well. This created a huge gap in the products offered in the market for such UHNIs who might’ve needed a more client-aligned, open-ended fund.
Non-traditional avenues emerging with diversification as a viewpoint
The writer is co-founder and CIO of investment firm True Beacon and online stock trading platform Zerodha