What is the new ownership structure at Nuvama?
In 2021, Edelweiss sold a controlling interest in the wealth management business. So, 56% stake is now held by the private equity fund PAG. Edelweiss today has a 44% stake.
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What’s the story behind the name ‘Nuvama’?
So, ‘Nu’ stands for new and ‘vama’ in Sanskrit means wealth and fortune. We are calling ourselves the new way of looking at wealth and fortune.
Can you take us through the wealth management journey?
Investment banking was among the earliest businesses built by Edelweiss in 1996-97. Soon after that, there was the institutional equities business that was created to serve the needs of institutional investors in Indian markets and then there was derivatives in the early 2000s. So, it was important to build expertise in derivatives, which today forms part of the capital markets business. The journey of wealth management started around 2010 when some of us joined. We have scaled that business, which is about ₹2.3 trillion in terms of client assets today.
When I started my career, I didn’t think that we would come this far. But all this transformation happened; wealth creation happened in India and the industry size doubled almost every five years. And, over the years, we have seen changes in the needs of the customers, their aspirations, the portfolios, and allocations.
How have client needs changed over the years?
In 2015, we were only ₹10,000-odd crore of assets under advisory (AUA). When we started in 2010, the pace was very slow in the beginning. We were all still figuring out the customer value proposition, what segments will grow, how we should build our products, our technology, etc. and the team was also very small at that point of time. By 2015, we were still a small team, but we had built a sizeable base. At that point of time, if you had asked me whether we will be ₹2 trillion in assets, I would have maybe said no. But our aspiration was to grow.
By 2018, we were managing ₹1 trillion of assets. We saw a lot of wealth creation. Between 2015-2018, equity markets had done quite well. A lot of companies also got listed on the stock markets. During that phase, we saw an early interest from our customers in very different kind of products. Some customers asked us whether we could give a private equity product for them to participate in these so-called unicorns in India. Some customers wanted to participate in infrastructure, real estate or yield-oriented products. So, product choices, portfolio choices started to change, and the scale of portfolios also became fairly large.
Also, the spectrum of clients changed. A lot of professionals came in, like CXOs, CEOs, etc., as lot of wealth got created through Esops (employee stock options). So, we created a good product proposition on the Esop side for such clientele.
Would you say that the fastest growth happened during this period?
Yes, 2015 to 2020 was one of the fastest periods of growth. A lot of things came together. The economy was doing well, the markets were doing well. A lot of financialization of wealth happened. There was a lot of wealth creation, Esops were happening, IPOs were happening. So, I think a lot of tailwinds came together.
We also invested in training, development, building technology and products. What is more interesting now is that 30% of our new clients are coming from beyond the top-10 cities.
Can you share the broad asset allocation mix of your clients across different asset classes?
Each client is very different. So, it is hard to generalize. There will be portfolios that will be 100% fixed income and portfolios that will be 100% equity. So, I think it’s unfair to generalize and say that this is what a typical client looks like. But I can tell you that fixed income continues to be a large allocation in client portfolios, followed by equity—it could be direct, as well as managed products— followed by alternatives. In between, there will be some structured products, and maybe some other solutions.
What is the focus of your asset management business?
The focus of our asset management business is to give clients solutions for their unsolved needs. There are four big categories of needs that are not solved for the customer. One of them is the post-tax yields. The problem in India is that post-tax, in a high-inflation country like India, yield solutions are very limited. Solutions that give you high post-tax yield are fairly limited. Many products that were supposed to deliver have not done so. Or, as an investor, you end up taking too much risks for very little incremental yield. Yield is one big unsolved problem.
We can use a variety of products to solve this problem. There is commercial real estate, which can give you 14-15% returns pre-tax, post-fee yield. One can look at credit products of residential real estate, or even market-linked debentures. We are trying to solve for this and working on a yield-product. We have also recently launched a venture debt fund.
The second big problem is volatility. Volatility shows up in a lumpy form—in a very short period, but in a lumpy form. What happens is that you build your equity portfolio and it compounds, let’s say at 12-15% over three-five years. But suddenly a big event happens, and you end up losing 30-35% of your portfolio because you have no strategy to manage that drawdown or risk. So, volatility impacts the client, it impacts the outcomes, it disturbs or destroys the compounding cycle. It also hurts people who are dependent or are planning for a life-event around that growth or that compounding. We already have a product in place that aims to solve this problem by using derivatives to hedge the portfolio against volatility.
What are the two other unsolved problems?
The third unsolved problem is one of access. Look at our private equity market. So, private equity invested capital in India is about $250 billion over the last 10-odd years. It is actually bigger than FPI (foreign portfolio investors) inflows. But a miniscule part is available to the Indian customers. All of this $250 billion is from foreign funds, foreign pensions, large endowment funds. So, in a way, India’s best new-age companies are not being owned by Indians or the access is not there.
We are quite active in this space. We have launched two private equity funds over the years, which have done quite well. We have recently raised money for a third fund.
The fourth problem we are trying to solve for is that of diversification. In Indian markets, there are four asset classes largely for a customer—real estate, gold, fixed income and equities. All of these are usually held in single currency. Is that fair? Should there be more asset classes available? Should there be more diversification available to our Indian customers? I think the answer is yes. So, we are trying to solve for all these needs.