THE INDIAN ULTRA HNI Design: Junoon Ventures | Unik...

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td. THE INDIAN ULTRA HNI

Optimism Uninterrupted

ForewordWhat an exciting year 2015 has been! India

emerged one of the strongest larger economies

in the world, despite bumps such as the stress

in the banking sector and a choppy stock

market performance. For ultra HNIs, last year’s

positivity flowed through into this year (Optimism

Uninterrupted) with reforms taking root, inflation

under control, and economic growth looking up.

Our annual report, Kotak Wealth Management’s

Top of the Pyramid (2016 edition), continues to

capture the mood of the ultra HNIs in India in the

context of the country’s changing socio-economic

landscape. Top of the Pyramid remains the last

word on the lifestyles, aspirations, and opinions of

India’s most wealthy. In addition to analysing the

spending and investment patterns of the

ultra HNIs, for 2015, Top of the Pyramid also covers

their increasing interest in art and collectibles, and

their growing affinity for wearable devices.

The edition has looked at the growing tendency

among the ultra HNIs to incorporate increasing

‘goodness’ into their lives. Two such inclinations

have emerged strongly – their keen interest in

renewable energy and their increasing bent

towards investing in companies that make a

sustainable difference to many people’s lives, also

known as impact investments. In this context,

we have profiled four unique individuals whose

ventures and investments have set out towards

sustainable and positive changes.

Our annual survey delved into the details of

another interesting development – from treating

death as taboo, India’s jet set has started facing

the inevitable head-on and is actively providing

for and simplifying the lives of their loved ones,

employees, and dependents through succession

planning initiatives. Top of the Pyramid looks at

the various means that the ultra HNIs employ to

plan for progression.

As always, Top of the Pyramid takes you through

the extraordinary and remarkable lives of India’s

ultra HNIs that continue to stay firmly at the helm

of India’s development journey.

Happy reading!

Dipak Gupta Joint Managing DirectorKotak Mahindra Bank Ltd.

Foreword

01

INSIDE THE REPORT 04 About the report

08 Executive summary

12 Optimism Uninterrupted

SPENDS� Income allocation

Areas of spends

� Apparel and accessories

� Art and paintings

Wearable devices

PROFILEMr Nagaraja Prakasam Partner, Acumen Fund

Type of collectibles

Sources of purchase

Key drivers

S P E C I A L F O C U S

43 Succession Planning � Modes of succession planning

� Activities and time allocation

Implementation


PROFILEMs Shaheen MistriFounder, Akanksha Foundation & CEO, Teach For India

19

Collectibles37

02

TOP OF THE PYRAMID 2016 | Kotak Wealth Management

73 Impact Investment� �Ultra HNI exposure to impact investment

� �Sectors in impact investment

� �Key drivers

� �Investment modes

Importance of renewable energy�

��Types of renewable energy and

investment patterns

��Key drivers

55 Renewable Energy

PROFILEMr Vinod Keni Co-founder & Partner, Peachtree Management Advisor


INVESTMENTS Sources of wealth and �

� �asset allocation

��Commodities�


63

PROFILEMs Roopa Kudva Partner & Managing Director, Omidyar Network India Advisors

03

ReportAbout the

This year saw a 7% increase in the number of ultra HNHs to

about 146,600. This continuing

positive sentiment is captured in the

theme – “Optimism Uninterrupted”

Making of Top of the Pyramid 2016


04

op of the Pyramid is Kotak Wealth

Management’s annual publication that

covers the spending, investment and

lifestyle patterns of ultra-high-networth

individuals (HNIs). Kotak Wealth Management,

the private banking arm of Kotak Mahindra Bank,

commissioned professional services firm Ernst &

Young LLP (EY) for the report.

EY collaborated with market research firm

Feedback Consulting for the survey to study and

analyse ultra-HNI trends. For its projections, EY

used parameters such as GDP growth, savings and

inflation rates, past and projected financial and

non-financial asset-class allocations, and returns.

With the advent of improved government

policies and reforms, both accomplished and

planned, India has emerged as a much stronger

economy. These government initiatives have

influenced the investing and spending patterns of

ultra high-networth households in India. This year

saw an increase in the number of ultra

HNHs to about 146,600 (7% growth over last

year). It is this continuing positive sentiment

that is captured in the theme of the report –

“Optimism Uninterrupted”.

While looking at their spending and investing

patterns, the report has explored ultra-HNI

behaviour in apparel and accessories, art

and paintings, and wearable devices. The

special focus of this year’s edition is collectibles,

renewable energy, succession planning and

impact investments.

During our research, we observed that

emerging cities and small towns continue to

form a significant part of the Indian ultra-HNH

population. We found that besides the top-four

metro cities, non-metro cities such as Bengaluru,

Ahmedabad, Pune, Hyderabad, Nagpur,

and Ludhiana contribute 45% to the Indian

ultra-HNI population.

The current report is a culmination of insights

from three main sources that are listed below:

1.A detailed market survey of 225 ultra HNIs

by Feedback Consulting. The survey took place

between January 2016 and March 2016 in the

form of face-to-face interviews. These interviews

were conducted over 12 cities to understand the

lifestyle of ultra HNIs in India and changes over

the previous year.

2.A series of interviews were conducted with

ultra HNIs to understand their patterns and

201320122011

Covers of the last fi ve editions

2014 2015

05

About the Report

preferences in impact investments, renewable

energy, collectibles, and art and paintings. In

addition, their spending patterns in apparel and

accessories and preferences in wearable devices

were also studied.

3.Secondary research and additional analysis

by EY. EY extensively analysed the results of the

survey and validated its conclusions through

primary interactions with service providers.

This report would not have been possible without

the cooperation of all the survey respondents

and the interviewees. We thank them for their

invaluable support, the time they put at our

disposal, and the insights they offered.

About Kotak Wealth Management

About Kotak Mahindra Group


06

The Kotak Mahindra Group has come a long way

since its early days and caters to diverse financial

needs of individuals and the corporate sector,

nationally as well as internationally. With its

understanding, experience, infrastructure, and

most importantly, its commitment, the Group

consistently delivers pragmatic solutions.

Kotak has consistently pursued opportunities

and capitalised on them in a rapidly changing

economic and business landscape.

In the early period of Kotak’s journey, one

particular day stands out – 21, November 1985.

On that day, Mr Uday Kotak identified an

opportunity in the bill-discounting market. With

a seed capital of less than US$80,000, borrowed

from family and friends, and a small team of three

that has grown to over 40,000 as on March 31,

2016, he skillfully steered what was initially a bill-

discounting startup into a giant financial services

conglomerate with assets of US$19 billion.

In February 2003, Kotak Mahindra Finance Ltd.,

the group’s flagship company, received a banking

license from the Reserve Bank of India (RBI),

becoming the first non-banking finance company

in public to convert into a bank – Kotak Mahindra

Bank Ltd.

Kotak Group’s solutions are technology driven,

contemporary, and comprehensive, and they

span consumer, commercial, corporate and

investment banking, wealth management, retail

and institutional equities, asset management, life

and general insurance. The bank is channelising its

industry experience and capabilities to cater to its

changing customer aspirations.

Effective April 1, 2015, ING Vysya Bank Ltd.

merged with Kotak Mahindra Bank Ltd. creating a

`2 trillion institution (consolidated). As on March

31, 2016, the merged entity – Kotak Mahindra

Bank Ltd, has a significant national footprint of

1,333 branches and 2,032 ATMs spread across 674

locations, affording it the capacity and means to

serve its customers even better.

Kotak Wealth Management is Kotak Mahindra

Bank’s private banking arm. It provides financial

advice to some of the most distinguished high-

networth families in the country. It is one of the

oldest and the most respected wealth managers

in India with over 16 years of experience. Its

client base ranges from entrepreneurs to business

families and employed professionals, including

over 40% of India’s top-100 families (as per the

Forbes India Rich List, 2015).

07

We believe that no single asset class tends

to perform consistently over a long period and

that an HNI needs to have access to various

asset classes, investment styles, themes, and

tenures. With this philosophy, Kotak has built a

formidable suite of products and services for this

specific audience.

Our offerings are customised for the client’s

profile and investment objectives. With an

in-depth understanding of the client’s

requirements and of various asset classes, Kotak

offers the widest range of financial solutions

through a transaction-based investment approach

or the asset-advisory approach. Our truly bespoke

banking solutions also include one of the most

premium credit card propositions offered, by

invitation, to eminent clients.

We also offer ‘Family Office Services’ to

ultra-high-networth investors, providing

comprehensive financial solutions that go

beyond investments. Through ‘Kotak Mahindra

Trusteeship Services’ we offer estate planning

services that deal with succession planning by

creating private family trusts.

We have maintained our leadership position due

to our in-depth understanding of our clients'

requirements and the macro environment, and

our prowess over various asset classes.

Kotak Wealth Management has been adjudged

the Best Private Bank - India for the 7th year in a

row, by FinanceAsia Country Awards 2015.

About the Report

they treasure the absolute pleasure of owning a

beautiful and timeless creation, but also because

owning art has started making sound business

sense due to its manifold value appreciation.

In this light, ultra HNIs are increasingly treating art

and paintings as an integral component of their

portfolios. Even so, our survey shows that

for 68% of ultra HNIs, art and paintings are

impulse purchases; only 32% engage in research

before buying.

If e-commerce was the buzz last year, this year

wearable devices are gaining ground from a

technology perspective and have become very

popular. Ultra HNIs have followed and adopted

this trend keenly, so much so, that these devices

now form a part of their daily lifestyle. Popular

devices include smart watches, fitness bands,

smart glasses, virtual reality headsets, and sleep

headphones – to name only a few. These wearable

devices are carving out a niche for themselves

in catering to specific needs – such as fitness

bands for health-conscious individuals and smart

watches to aid convenience.

Another area of passion for the ultra HNIs

continues to be collectibles. They do not leave

any stone unturned to collect items that add to

SummaryExecutive

Optimism about growth boosted both spends and investments

n FY16, India emerged as one of the

strongest economies the world over,

because of robust GDP growth and

reduction in both inflation and current-

account deficit. This translated into

improved ultra-HNI sentiment, which is reflected

in their increased spends and investments.

We estimate that the number of ultra HNHs grew

to 146,600 in FY16 from around 137,100 last year,

a moderate growth rate of 7% over one year and

16% compounded growth over five years.

Optimism about economic growth has motivated

ultra HNIs to increase their investments into

their primary businesses as well as to boost

their spends. Most of their spending categories

have seen an increase. Jewellery, apparel, and

electronics continue to be at the top, accounting

for nearly 50% of total spends. In our interactions,

we found that 64% ultra HNIs are impulsive

buyers when it comes to apparel and accessories.

Despite the allure of foreign destinations, many

of them prefer to shop within India, as most major

foreign luxury brands are now available locally.

There has also been increasing awareness about

art among the ultra HNIs, not only because


08

Optimism about economic growth has motivated ultra HNIs to increase their investments

into their primary businesses as well as to boost their spends

the grandeur of their living rooms, office spaces,

or atriums. Passion is a major factor in pursuing

collectibles – 70% of ultra HNIs that we interacted

with confessed that their passion for owning a

collection of exotic and interesting items drove

their purchases.

Renewable energy has been an important

component of India’s energy planning process

for more than four decades and ultra HNIs have

always been enthusiastic about adopting and

promoting renewable energy.

Most of them strongly believe in an eco-friendly

lifestyle and strive to re-use resources, to plant

trees, and to use electric / alternate fuel cars.

Socially conscious and environment-friendly

ultra HNIs are increasingly adopting ‘green’

building practices to minimise the footprint of

their homes on the ecology while maximising

comfort. This sector is also seeing investments

towards solar rooftops and boilers and wind-

driven machinery, mainly because of government

incentives. This is likely to be a big focus area for

ultra HNIs.

As their wealth continues to grow, it becomes

very important for ultra HNIs to pass it on to

upcoming generations in a systematic manner,

which ensures sustainable growth. Today, most

ultra HNIs understand that succession planning is

a continuous and proactive process, and their plan

involves identifying potential leaders, grooming

them, and encouraging them to look beyond their

immediate responsibilities.

Our survey revealed that 43% of ultra HNIs

prepare for at least five years to put an efficient

succession plan in place, while another 35%

take anywhere between two to five years.

When it comes to a successor, over 90% of

ultra HNIs choose from their children and high-

Executive Summary

09

performing family members, while less than 10%

choose outsiders.

However, this trend is likely to change in

the future because of the increasing need

for professional management from a good

governance perspective. Even today, most ultra

HNIs (73%) prefer planning for succession with

their close confidants; a few look for advice from

external sources such as chartered accountants,

consultants, and wealth managers. People are also

gradually relying on professional estate planners,

trustees, and wealth advisors.

The bullish trend in equity markets saw a reversal

this year with a near-20% fall, mainly due to

global events such as a sharp plunge in the

Chinese stock markets and a drop in foreign fund

flows. This led to a realignment of the investment

mix – with real estate (mainly commercial), debt,

and alternate assets gaining ground at the cost

of equities.

As part of alternate assets, commodities attracted

ultra-HNI interest this year. Our survey revealed

that 72% of ultra HNIs invest in commodities; of

these, 40% have invested about 5-10% of their

total assets in commodities, with gold and silver

continuing to be the most preferred. This trend

is likely to continue until equity markets start

picking up.

The philanthropic interest of ultra HNIs has

seen a change over the years; the need to

build enterprises that not only create a positive

difference in society, but ones that are self-

sufficient, economically viable, and lasting,

essentially ‘sustainable social enterprises’, is

very strong. This has led to the emergence of

impact investing – a growing trend among the

elite. While the general interest for impact

investments is high, professionals seem to have

the highest inclination – 67% have an exposure to

these investments. Key sectors attracting impact


10

Increased spends are a good proxy for rising optimism and are likely to continue

with steady economic growth

investment include financial services, clean energy,

and affordable housing.

The impact-investment space is receiving

traction from the ultra HNIs, mainly based on

the attractiveness of the sector and stability of

returns. In addition to the existing Indian funds

focusing on the segment, there is also a trend

towards impact-investment-focused global funds

setting up shop in India, which will give further

impetus to this sector.

The economic scenario has remained steady

and the mood of ultra HNIs is buoyant based

on better government and private consumption

and spending outlook. Increased spends are a

good proxy for rising optimism and are likely to

continue with steady economic growth.

Higher propensity towards spending also brings

good tidings for the luxury goods market, which

seems to be getting stronger in India and is

spreading out its reach to capture smaller towns

and cities.

Executive Summary

11

As their wealth continues to grow, it becomes very important for ultra HNIs to pass it on to upcoming generations in a systematic

manner, which ensures sustainable growth

The government’s flagship policies – Start-Up India

Action Plan, Make in India, Smart Cities, and

Swachh Bharat – are gaining traction both in

India and abroad

OptimismUninterrupted!

The ultra HNI mood has been

upbeat because of strong economic growth


12

Y16 was one more step towards a

stronger India. Stability in GDP growth seen

this year (7.6% in FY16, 7.2% in FY15),

even as other BRICS nations and major

economies struggled, was a strong indicator of

sustained progress. India’s GDP growth surpassing

China’s was another milestone, one that India

should be able to sustain. The quantum and

magnitude of the government’s reforms, both

accomplished and planned, are also indicators of

a stronger economy.

Other factors that contributed to India’s progress

were a fall in crude oil prices and inflation coming

in below the target range, which allowed the

RBI to reduce its repo rate twice in FY16. This

move is likely to reduce cost of borrowing and

stimulate growth by encouraging investment in

the corporate sector.

Falling oil prices also had a positive impact on the

current account deficit, which was at 1.1% of GDP

for FY16.

The government’s flagship policies – Start-up

India Action Plan, Make in India and Smart Cities

are gaining traction both in India and abroad.

These initiatives intend to strengthen India’s

infrastructure; they have already translated into

2010-11 2011-12 2012-13 2013-14 2014-15

Growth of Ultra HNHs in IndiaWe believe there were 146,600 HNHs in FY16 with an

62,000 81,000 100,900 137,100117,000

2015-16

accumulated net worth of `135 trillion

Number of Ultra HNHs Combined Net Worth

`45trillion

`65trillion

`86trillion

`104trillion

`128trillion `135

trillion

146,600

Source: Top of the Pyramid 2016, Kotak Wealth Management

Introduction

13

on-ground investment and led to the

country becoming an attractive FDI destination.

While India still has a while to go before being

counted among the best economies, strong signs

are emerging.

With rising pollution levels, especially in metro

cities, there is an increasing awareness about

the environment. The government has launched

several initiatives to tackle this issue, which has

also prompted interest from the private sector.

Ultra HNIs have evinced interest in investing

into sectors focused on tackling social and

environmental issues.

On the global front, the Chinese market crash

was a result of perceived weakness in the Chinese

economy, which in turn was interpreted as a sign

of an impending global downturn. The Indian

stock markets also suffered from the effects, with

a sharp correction and general cautiousness in

sentiment through the year.

The US Presidential election due this year, and

the Brexit, are something that India is following

closely; both events have a considerable bearing

on global economies, especially India’s.

Compounded growth of the

number of Indian HNHs

over the last five years was 16%

with 146,600 such households

in FY16

We expect these to touch 294,000 by FY21 with a combined net worth of `319 trillion

Growth in the Number of Ultra HNH Households

146,600

294,000

Number of Ultra HNHs Combined Net Worth

2015-16

2020-21


`135

`319trillion

trillion


14

India’s Ultra High Networth Households

Our current edition of ’Top of the Pyramid’

follows the previous editions’ methodology. We

define an ultra HNI household (HNH) as one with a

minimum net worth of `250 million, mapped over

10 years. Growth in the number of ultra HNHs was

a bit slower this year.

We estimate that there were about 146,600

ultra HNHs in FY16 vs. around 137,100 last year,

a moderate growth rate of 7% over one year

and a 16% compounded growth over five years

(corresponding growth rates last year were

higher at 17% and 22%). These HNHs represent

an accumulated net worth of `135 trillion, which

is a 5% growth on last year’s wealth and 18%

compounded growth over the last five years.

We project that the number of ultra HNHs will

increase to 294,000 by FY21 with a combined net

worth of `319 trillion driven by new ultra HNHs

from emerging sectors and new avenues for

investments that give higher returns. Smaller cities

will also contribute to this growth in the number

of ultra HNIs and their wealth.

Small centres such as Surat, Indore and Jamshedpur continue to create new ultra HNIs, mainly in the inheritor and entrepreneur categories

Introduction

15

The business and investor-friendly approach of

the government will help nurture and sustain a

start-up ecosystem in the country, and propel the

growth of ultra HNHs.

As predicted in previous editions of ‘Top of

the Pyramid’, we believe emerging cities and

small towns will continue to form a significant

proportion of the ultra-HNH population-

The Geographical Spread of Ultra HNHs in India


While metros continued to hold 55%, emerging cities and small towns stayed at a significant 45%

55%

17%

5%23%

Top 4 cities: Mumbai, Delhi, Chennai, Kolkata

Next 6 cities: Bengaluru, Ahmedabad, Pune, Hyderabad, Nagpur, Ludhiana

Next 11-20 cities: Chandigarh, Surat, Jaipur, Lucknow, Kanpur, Jamshedpur, Amritsar, Raipur, Indore, Aurangabad

Rest of India

Indianisation of their brands has been tried earlier by

international luxurycompanies to increase

their appeal


16

we estimate 45% coming from these non-

metro centres. The penetration of the digital

phenomenon is influencing and changing the way

people in India buy not just common goods, but

also luxury items. Until a few years ago, luxury

retailers thought that selling these exclusive goods

needs a personal touch at their outlets, but they

are slowly warming up to the idea of an online

marketplace.

In fact, the difficulty in establishing a connection

with the non-metro customer base is the primary

reason that luxury brands are turning towards

the fast-permeating digital phenomenon. A few

retailers are also adopting models such as ‘on-

demand home shopping’ for customers from non-

metros and small towns.

The quest to reach a wider population is also

aided by start-ups with innovative models,

which are introducing ‘experiencing’ luxury and

exclusivity – this helps address key imperatives

for luxury brands operating in India, which are to

increase the awareness of the brand and establish

brand credentials.

While Indian luxury private labels are known to

have product lines that are largely ‘Indian’, there

are a few instances where international luxury

brands have ‘Indianised’ their product lines,

commonly seen in the food industry.

This is not a new phenomenon – even earlier,

international luxury brands have tried this

approach to increase the appeal of their products

in smaller cities, but it has not gained the traction

and the attention it deserves. It would be

interesting to see if international luxury brands

are able to successfully employ Indianisation as a

way to increase their reach and capture traditional

Indian ultra HNIs.

The subsequent chapters of ‘Top of the

Pyramid’ will take you through the current

lifestyle trends and investment patterns of Indian

ultra HNIs.

The report this year covers unique themes such

as collectibles, renewable energy, succession

planning and impact investment capturing the

dynamic lifestyles of ultra HNIs.

Introduction

17

The Key Attributes of Ultra HNIs in the Indian Context

The following table gives the key attributes across three categories of ultra HNIs – entrepreneurs, inheritors, and professionals – in the Indian context

Entrepreneur Inheritor Professional


Sources of wealth Motives for wealth creation Attitude to perpetuation of wealth

Drivers for spending Attitude to charity Approach to investing

Entrepreneurship

Self-recognitionand achievement

Wealth is strictly forthe immediate family

Attainment ofluxurious lifestyle

Provides mainly monetary support, less time

More opportunistic,informal

Inheritance,entrepreneurship

Wealth preservationand growth

Wealth must remainwithin the family

Maintaining a luxurious lifestyle

Compassionate,provides money

Organisedand planned

Selfactualisation

Wealth is for family,

Attaining valuefor money

Important part of the

Disciplined and planned with systematic goals

but they must striveto earn it

spending, provides time and money


18

The average age of an Indian ultra HNI is reducing, and nearly half of them are now less than 40 years old. Increasing number of start-ups have aided this fall in average age. Good performance of the Indian economy, as evident from high GDP growth, is reflected in rising ultra HNI spends this year.

Increasingly younger ultra HNIs, with high disposable incomes and an ample choice of luxury options, are usually high spenders. They are also the ones who are largely responsible for bringing in concepts such as ‘experiential luxury’ into the limelight.

The recent ecommerce and technology boom has created many relatively young ultra HNIs who have sky-high aspirations and desires when it comes to luxury in their lifestyle. Luxury retailers have recognised this opportunity, and are already aiming to capture the mind space of these young guns by engaging in targeted marketing. This is one of the reasons for the rapid expansion of these retailers into smaller centres to leverage, on the increasing ad-hoc spends of these ultra HNIs.

LUXURY FOCUS ON

The celebration continues

SPENDHOW THE ULTRA HNIs

UNABATED!

Spends

19

Ultra HNIs Choose Investments over Savings

investments into primary businesses. This year,

59% of the ultra HNIs we surveyed increased their

investments into primary businesses and 43% saw

a decrease in their overall savings, which they

substituted with investments.

Non-discretionary expenses continued to

dominate their income allocation, except in the

case of entrepreneurs, for whom investments into

businesses became a priority. For professionals,

the proportion of savings reduced over last year,

with a commensurate increase in their investments

for personal wealth.

In FY16, India recorded the highest GDP growth

among major world economies, thereby

incentivising various stakeholders to increase their

investments into the economy. Inflation saw a

downward trend – with June 2015 recording the

lowest monthly CPI of 3.69% since FY14’s high of

over 11%. Consequently, the RBI cut rates twice

in FY16 (cumulatively by 0.75%), even after it had

already effected two rate cuts of 0.25% each, just

before the start of the financial year.

The rate cuts led to a fall in lending rates and

ultra HNIs turned to substituting savings for


Expenses

Savings and Investments

55%

45%

How Ultra HNIs Allocated their Income this YearPrioritised investments into primary businesses and personal wealth over savings

Others Charity

Investment forpersonal wealth

Savings

Investment intoprimary business

Discretionaryexpenses

Non-discretionaryexpenses

15%

25%

2% 5%

16%

14%

23%


20

Family-Centred Expenses see a Spike

Jewellery and apparel continue to remain ultra

HNIs’ top-spending categories, followed by

holidays. Family-centred expenses – spending

on jewellery, holidays, apparel, automobiles,

home décor and events – continue to dominate

by contributing to 68% of overall spends, a slight

increase over 67% last year.

A higher proportion of ultra HNIs compared

to last year are now considering these

family-related expenses (except home décor) as

non-discretionary.

In the jewellery space, Indian boutique

jewellers are becoming popular. Recently, a

prominent Indian jewellery designer’s collection

of customised diamond cuts was worn by a

Hollywood celebrity at the Oscars, making it so

popular with the ultra HNI that his company is

coming out with a `1000 crore IPO.

Apparel and accessories are the second biggest

spending avenue for ultra HNIs, and one of the

primary ways that they showcase their wealth and

A renowned Hollywood actress wore the collection of a

prominent Indian jeweller at the Oscars — this boosted the

popularity of the jeweller among the ultra HNI. The jeweller is

now planning a `1,000 crore IPO!

Allocation of Income by Ultra HNIsProfessionals reduced savings this year, to choose

investments for personal wealth


Discretionaryexpenses

Non-discretionaryexpenses

Investment intoprimary business

Savings

Investment forpersonal wealth

Others

Charity


24% 27% 23%

15% 15% 16%

5%

5%

4%

25% 23% 17%

14% 13% 19%

15% 15% 19%

2%2%

2%

Spends

21

Jewellery and Apparel Retain the Largest Share within Areas of Spending Share of apparel and accessories, holidays, and electronic gadgets increased

Jewellery Apparel

Electronics Home Related

Events

Vintage Spirits

LuxuryWatches

Art & Paintings Automobile

17% 16%

13%

11%

9%

5% 4%


5% 5%

Holidays

15%

passions. In an attempt to capture the interests

of India’s ultra HNIs, subsequent chapters detail

their spending preferences on apparel and

accessories, in addition to their interest in

wearable devices, art, automobiles, and events.

We have also captured their growing interest in a

sustainable lifestyle and renewable energy as an

investment avenue.

Almost all areas of spends have seen an

increase over last year, indicating positive

sentiment among ultra HNIs, driven by improved

economic outlook.

Luxury companies looking to woo young ultra

HNIs and garner a large share of their lifestyle

spends are likely to take a cue from this pattern.


22

UPSCALE ELEGANCEDesigner-wear and expensive accessories are haute with the Indian ultra HNI

he ultra HNIs live in a world filled with

innumerable business appointments,

luncheons, formal dinners, and high-brow

events, adorned and embellished by a

landscape of beautiful clothes – elegant business

suits, sophisticated foreign labels, and exclusive

collections by stylish designers, both from India

and abroad.

This section attempts to peek into the glamorous

wardrobes of India’s richest, usually filled to

the brim with the latest outfits from premier

luxury brands. In their purchases of apparel and

accessories, brand value is what pulls at the ultra-

HNI heart and purse-strings the most. They cannot

resist the tasteful temptation of the limited-

edition release of luxury-brand items, and it

usually turns into an impulse purchase.

In our interactions with ultra HNIs, we found that

64% of them are impulsive buyers when it comes

to apparel and accessories.

When a member of the British royal family wore an outfit by a high-end Indian designer, the designer’s website crashed due to enquiries from all across the globe

Spends

23

Popular Buying Destinations for Apparel and Accessories India is the favourite, followed by Dubai, Singapore and Europe

59% 28 5%

3%

19%%% 28Singapore EuropeDubaiIndia Thailand


Other destinations

Dubai and Singapore have emerged as other

popular destinations for apparel and accessory

shopping, while Europe is the next most popular.

What they really value is variety and exclusivity.

Many Indian ultra HNIs and their family members,

particularly women, are true fashionistas at

heart. They own exquisite collections of Indian

and western wear, which are integral to the

various high-profile events that they attend

almost daily. Most ultra HNI wardrobes, especially

women’s, are sure to include luxuriously

embellished Indian-wear crafted by prominent

Indian designers and accessories from top-end

international brands.

While ‘branded luxury’ was the most important

driver in their apparel choices (32% of them said

that this was their first priority), weather-specific

choices in clothing was important for 26% of ultra

HNIs. Interestingly, men were found to be more

brand conscious compared to women!

Not too long ago, visiting a foreign location for

shopping and other purchases was de riguer for

these brand-conscious ultra HNIs because of the

limited choice that shopping in India had to offer.

However, this is not strictly necessary anymore -

we observed through our survey that as many

as 59% ultra HNIs now satisfy their apparel and

accessory purchase needs in India itself.


24


15%

30%

43%

7%

5%

16%

33%

41%

9%

1%

The Frequency of Apparel and Accessory PurchasesOnce a quarter to once a month

9%

33%

29%

19%

10%


More than once a month Twice a year At least once a yearOnce a month Once a quarter

15%

31%

41%

9%4%

Overall

In our interactions, we observed that while

professionals tend to have a lower frequency of

apparel and accessory purchases, entrepreneurs

and inheritors are more frequent buyers.

However, most ultra HNIs picked up these items

between once a month and once a quarter.

Interestingly, product catalogues of international

luxury brands have started showing an inclination

towards ‘Indianise, personalise, and customise’.

For example, a European pen manufacturer

regionalised all its marketing material letterheads,

invitation letters, and newsletters; it also altered

other aesthetics such as colours and amount of

decoration used to Indian tastes. A Lebanese

designer's spring 2016 collection was inspired by

Indian looks of the traditional saree and salwar

kameez. A French luxury footwear and fashion

designer launched a Bollywood-inspired shoe

collection which included traditional Indian

designs and embroidery.

Past offerings by top brands have set the tone

for the future in terms of trends in apparel and

accessories, one that is increasingly inclusive of

Indian-ultra HNI tastes and desires.

Spends

25

ART AND PAINTINGS

eorge Bernard Shaw is once believed

to have said, “Without art, the

crudeness of reality would make the

world unbearable.” Indian ultra

HNIs seem to be on the same page as

Mr Shaw – most have always been passionate

about art, but a growing number are now

considering it a safe haven for investment and a

means to preserve family wealth.

Art and paintings have always been an inherent

part of Indian culture, whether it is Mithila

Madhubani paintings, Rajasthani miniatures,

Mughal, Mysore, Pahari, Tanjore, and Rajput

paintings, Raja Ravi Varma’s inimitable style, or

Odisha’s pattachitras – they all are an important

part of India’s rich history.

With increasing awareness about art, not only

for the simple pleasure of owning a beautiful

and timeless creation, but also for the sound

For the simple pleasure of owning beauty

Leading auction houses focus on prolific Indian

artists besides other modern figurative and

abstract artists


26

business sense it makes due to its manifold value-

appreciation, ultra HNIs’ are increasingly treating

art and paintings as an integral component of

their portfolio.

Our survey shows that for 68% of ultra HNIs, art

and paintings are impulse purchases; only 32%

engage in research before making a purchase

decision. For more than 80%, passion and status

are key drivers for acquiring art and paintings.

Other reasons include tradition and networking.

Ultra HNIs are combining their aesthetic sense

with their financial intuition to broaden and

What Drives Ultra HNI Purchases of Art?Passion and status are key drivers


Passion85%

Status81%

Tradition31%

Networking28%

Resale value26%

deepen the market, thereby making this segment

an alternative investment avenue.

Of the ultra HNIs we surveyed, 26% said that

they buy art and paintings for their resale value

and as an alternate asset-allocation avenue,

given that this segment acts as an effective

hedge against inflation and weak economic

periods. In addition to individual ultra HNIs,

buying of artwork has seen heightened interest

from the corporate sector and from institutions -

in fact, the corporate segment has already

amassed significant collections.

Spends

27

Types of Paintings that Indian Ultra HNIs Like64% prefer Indian paintings and 56% prefer western ones


Indian

64%Western

56%Dependent on Historical Importance

35%Contemporary

24%Far Eastern

33%

Indian art and artists have started receiving

global recognition; in fact, in the last few years,

Indian art has become a common feature in global

auctions. Increasing awareness and appreciation

has led to Indian art becoming the first choice

for ultra HNIs. Indian contemporary works also

sell at record-breaking prices in prestigious

auction houses.


28

Sources of Purchases

It is extremely important for ultra HNIs to obtain

independent and objective advice while making

investments in any asset class, including high-

value works such as art and paintings. The art

market has grown considerably in recent years,

which presents interesting opportunities for

providers of art-related services, as well as for

wealth-management services that would integrate

art in their services and strategies.

Based on our survey, we have found that 71%

ultra HNIs prefer to buy art and paintings from

art houses, 58% choose exhibitions, and 50% rely

on Indian auctions. Online galleries, international

auctions, and resale in secondary markets are also

preferred ways of buying art and paintings.

Where do Ultra HNIs Shop for Art?Most prefer buying from art houses, exhibitions, and auctions


Art House71%

Exhibitions58%

Indian Auction50%

Online Galleries38%

International Auction 20%

Resale in Secondary Market

16%

Last year, while inaugurating an art museum in Mumbai, a prominent ultra-HNI family displayed 30 paintings belonging to Baroda's royal family

Spends

29

Spending Patterns on Artthem twice a year. Only 10% spend on art at

least once in a quarter. While the interest levels

in art are high, the actual spending on art, in

comparison, is modest among the wider ultra HNI

segment; 85% spend less than `10 lakh on art and

paintings in a year while only 3% invested more

than `25 lakh per annum.

Our survey shows that average spends were

`7.5 lakh per year. This spending trend is likely

to rise with the growing demand and popularity

of Indian art across the globe and as ultra HNIs

develop a deeper understanding and appreciation

for art.

Driven by high disposable wealth, the growing

ultra HNI population has triggered a change in

investment behaviour in art and paintings. Prices

are driven by a combination of availability, quality,

and popularity.

Of the ones we talked to, 61% ultra HNIs purchase

art and paintings only once a year and 29% buy

One of the world's largest auction houses

recently made a record for any auction held in India - by selling art worth `100 crore in December 2015, highlighting the appetite

for Indian artSource: Top of the Pyramid 2016, Kotak Wealth Management

How Much do they Spend on Art?Not much; 97% ultra HNIs spend less than `25 lakh per year

85%

12%3%

Less than `10 Lakh

`10-25 Lakh

`25-50 Lakh



30

ACCESSIBLE CONVENIENCEWearable devices becoming very popular

ver the years, the term ‘wearable’ has

undergone a dramatic change. New

technology and its enthusiastic adoption

have helped to create a whole suite of

electronic products that can be worn. Ultra HNIs

have followed and adopted this trend keenly, so

much so that these devices now form part of their

daily lifestyle.

Interestingly, our survey showed that older

ultra Indian HNIs, between the ages of

36 and 50 years, were more eager to adopt

wearable devices than the younger ones;

we saw close to 61% adoption among the

36 to 50-year age group compared to 55%

adoption among ultra HNIs who are below 35

years of age.

Increasing Prevalence of Wearable Devices among Ultra HNIs57% of them use these devices in their daily lives


57Of ultra HNIs usewearable devices

%

O

Spends

31

The quest for access to real-time information in an

easy and convenient manner has led to as many

as 57% of ultra HNIs becoming users of atleast

one high-end wearable device. What was once

considered fiction has now become a reality;

devices of the future are now exclusive and

more accessible.

Currently, popular wearable devices include smart

watches, fitness bands, smart glasses, virtual

reality headsets, and sleep headphones – to name

a few. Our survey uncovered that as many as 68%

of ultra HNIs have a smart watch – it seems to be

one of their most popular wearable devices.

While only 32% of them use fitness bands, we

expect this usage to grow as awareness about

their advantages increases. Other niche products

like sleep headphones – which block out noise

to aid slumber, while being comfortable for the

sleeping user – are also gaining popularity.

These wearable devices are carving out a niche for

themselves in catering to specific needs – such as

fitness bands for health-conscious individuals and

smart watches to aid convenience. These gadgets

assist users in something as simple as allowing

them to answer calls, to something as complex

as becoming their personal health assistants for

tracking sleep patterns and fitness regimes. We

have seen the children of ultra HNIs showing an

avid interest in wearable devices such as smart

watches, virtual reality headsets, and segues.

The adoption of wearable devices has led to an

increase in interest in this sector, which is giving

rise to new start-ups; this, in turn, could make way

for ultra HNIs that are both young and tech savvy.

For 81% of ultra HNIs, wearable devices serve

as additions to social status. For an equally high

proportion (73%), passion for these devices drives

their purchases.

These hands-free devices are beginning to act as

virtual assistants to ultra HNIs and provide them

with customised recommendations – such as a

fitness band that prompts an optimal workout

regime allowing the users to set targets as per

their capability and stamina. At least 70% of ultra

HNIs in our survey believe that the high degree of

customisation offered by wearables has led to a

marginal-to-positive change in their lifestyles.

Most Popular Wearable Devices Smart watches are the rage; fitness bands are fast catching up


32%

Smart Watch Fitness Bands VR Headset SleepHeadphones

31%

17%

68%

Smart watches are the new

rage among the ultra HNIs and

fitness bands are also becoming

increasingly popular


32

Luxury wearable devices also provide options for

personalisation such as name and date engravings.

Not surprisingly, a few luxury jewellery and watch

brands have taken the concept of a wearable

device to a different level with the introduction

of ‘smart jewellery’ for the ultra-rich– diamond

studs and 18-carat gold, combined with cutting-

edge technology. These devices enable contactless

payments, gesture recognition, and remote access

to cars and homes.

The jet-set will increase their wearable-device

usage, as these gradually cater to every aspect of

their lifestyle.

Hands-free wearable devices are already acting like virtual assistants to ultra HNIs; their customised recommendations should lead to higher adoption

Reasons for Using WearablesMost common reasons include social status and passion


Social Status Passion

Convenience

Health & Fitness

Personal Safety

Innovation

81% 73% 45%

36%

33%

31%

Spends

33

P R O F I L E

If the impact is more with

low profit, it is better to be

an NGO

PRAKASAMNagaraja

r Nagaraja (Naga) is an angel investor,

impact-investment specialist, and a

member of the Indian Angel Network.

He spent 16 years (1996-2012) with CDC Software,

most of it in the US, from where he left as

President, South and Southeast Asia. In 2012, CDC

was sold to a private equity firm, and Mr Naga

M decided to take a break from a flourishing career

and do something completely different. The seeds

of this ‘something different’ were sown almost

13 years ago; in 1999, he and his team had raised

money for a group called Association for India’s

Development, which was used to support NGOs

in India.


34

more time and effort, it has good potential. This

led to the launch of IAN Impact, which is focussed

solely on impact investments. Its first venture was

GoCoop, India's first social marketplace to buy

and source handmade apparel, home furnishings,

fabrics, and crafts directly from co-op weavers

and artisans.

Initially, only 40-50 IAN members supported the

GoCoop concept, but ultimately all 350 came

on board, which eventually fuelled investments

in Uniphore (company that allows software

to understand and respond to natural human

speech in many languages), Saahas (organic

waste management, collection and recycling of

packaging waste and e-waste), and Freshworld

(a farm to home FnV using electric smartcards).

In fact, Saahas, he recalls, was an NGO. It took

a push from Naga and his portfolio consultant

company for Saahas to realise that it did not have

to remain an NGO – it could become a sustainable

social enterprise rather than depend on donations

for growth – and perhaps make a bigger

difference to people’s lives.

All his investments are in the impact space right

now in the `50 lakh to `6 crore bracket with the

average investment ‘sweet spot’ at `3 crore. He

calls this space “high risk and high return”.

Naga has invested in 18 companies and is sitting

on a 4X appreciation right now while some are

at 5X-13X return. 15 are doing well and 3 are not

doing well. He reinvests his returns, he says. He

believes that there is ‘political will involved’ in

renewable energy in India and sees a bright future

for this sector.

He served as the group’s president for a while

and spent time in India, particularly in India’s

villages when he realised that he fervently wanted

to contribute to the country’s social upliftment.

However, it was not until 2012 that he could

whole-heartedly pursue his heart’s desire.

From 2012, he has been a partner at Acumen

Fund, which invests patient capital in businesses

whose products and services enable the poor to

transform their lives. This US-based company was

started by entrepreneur and investor Jacqueline

Novogratz in 2001. Acumen has invested more

than US$88 million in 82 companies across Africa,

Latin America, and South Asia. Mr Naga joined

Acumen with the idea of bringing in the efficiency

of a corporate into the heart of an NGO.

Besides Acumen, he is a part of the Indian

Angels Network, and the founder Chairman

of Native Angels Network, a board trustee

of Nativelead Foundation, a non-profit

organisation promoting innovation-based New

Age entrepreneurship. He is also on the board of

several social-enterprise companies.

In his career as an angel investor, he has invested

in 18 startups in the impact investing space. His

investment philosophy rests on what he calls the

3Ps – profit / planet / people. “As an investor, my

main interest is profit. But as this is an impact

investment, there is a longer grace period – so this

is called patient capital,” he says.

Mr Naga was instrumental in making the Indian

Angel Network look at companies other than IT

for investments. As part of IAN, he urged fellow

investors to look at companies in the social space-

he believed that even though this space requires

The challenge is to get wealth into the social ecosystem

Spends

35


36

COLLECTIBLES

n the past, maharajas, royal families, and landlords lived

opulent lives and loved to surround themselves with

beautiful objects – commonly called ‘collectibles’. These

collectibles were often their pride and joy and were

proudly displayed for their aesthetic and monetary value. These

collections have included vintage cars, gems and jewellery,

paintings and sculptures, and curios.

Snap to the present and the zest for collectibles is equally

visible in ultra-HNIs’ collections. Ultra HNIs have varied

tastes – from the quaintest of objects to the most stunning,

ostentatious jewels.

These collectibles not only define their quest for luxury and

power, but also their desire to be exclusive and distinct. This

section explores the drivers for collectibles, various categories

within this segment, and their purchasing trends.

Defining the quest for luxury and power


Spends

37

Our survey revealed that 65% ultra HNIs prefer

collecting electronic gadgets and about a third

have developed this interest over the last one

year. Luxury cars account for 63% of ultra HNIs’

collections, followed by investments made in art

and paintings.

In fact, collecting cars that are antique or

fashionably modern is an established purchase

trend among this community over many years.

These car collections are extremely opulent,

depending on individual eclectic leanings. All

latest luxury / sports car models launched in

India – from coupes to caravans – are generally

pre-booked, showing the passion that ultra HNIs

have for cars as collectibles.

Ultra HNIs that invest in art / paintings for their

collectibles tend to invest in the most expensive

paintings by world-renowned artists, making their

homes veritable museums – almost an intimate

haven for art aficionados.

Most Preferred Collectibles that Ultra HNIs Invest In

A Kolhapur-based ultra HNI's enviable car fleet

is maintained by a team of

mechanics daily

What Kind of Collectibles do Ultra HNIs Covet?Most-owned are art and paintings, cars, and electronic gadgets


Electronic Gadgets

Luxury / SportsCars

Art / Paintings Sports / CruiseBikes

Antiques Currency Other Memorabilia

Stamps

65% 63%

56%

40%35%

30% 27% 21%


38

An ultra HNI we met is big into scripophily –

he collects antique stocks and bonds. His collection

totals more than 1,000 cancelled share and

bond certificates

It is not just their homes that they adorn with

these artifacts – they are very visible in their work

places too. Modern sculptures and contemporary

art is the latest flavour for the wealthy. Structures

and sculptures made out of waste and recycled

material are also becoming highly prized among

ultra HNIs.

The charm of letter writing is fading, but philately

(stamp collecting, once perceived as a hobby that

kids indulge in) has now become an investment

mechanism for ultra HNIs. Many of them look at

stamps known for their antique value and history

as an alternate investment avenue.

Collectibles are not always conventional. For

example, having a passion for carpets is fairly

Sources of Purchases

Ultra HNIs do not leave any stone unturned

in their quest for collectibles that add to the

grandeur of their living rooms, office spaces,

or atriums. These purchases are traditionally

known to require the collector visiting, examining,

and then estimating the value of the article

being purchased.

Even now, most collectibles are purchased through

physical channels (not online ones) with 63%

through special stores or institutions.

Of course, technology is augmenting traditional

physical purchases of collectibles; online

channels as a source of collectibles are evolving.

Our interactions revealed that 47% of ultra HNIs

are considering online channels for their purchase

of collectibles.

While special shops and old markets of cities are

famous among ultra HNIs for their collectibles

shopping, the increasing interest and growing

awareness of niche collections is also providing

unheard of in India. Nevertheless, an ultra

HNI from Delhi has several rare, characteristic

specimens of many varieties, some of them going

back 200 years! He collects these carpets from

around the world and exhibits them in metro

cities such as Delhi, Mumbai, and Bengaluru.

Spends

39

opportunities for specialised outlets, mobile apps,

websites, and communities that are emerging and

shaping up the collectible marketplace in India.

Special institutions and communities provide

ultra HNIs the chance to pursue, purchase, and

showcase their collectibles.

For example, because of the interest displayed

by the Indian ultra HNI community, one of the

world’s most prominent and oldest auction houses

One of the world’s oldest

auction houses recently opened an office in India

with a preview of some of its works for the very wealthy

opened an office in India recently and even

announced an exclusive preview of some

of its works that would subsequently go under

the hammer.

These auction houses do not just engage in vanilla

auctioning of collectibles, but work towards

kindling the interest of the ultra-rich community

through educational events that keep them well-

informed on current trends and concerns in the

global collectibles market.

From Where do Ultra HNIs Purchase their Collectibles?While mall displays and special stores are high up in ranking, online is making rapid inroads


Collected by SelfMall Display

Special Stores / Institutions

Online Purchase Auction

Museum Passed on as Heirloom

65%

63%

47% 34%

21%

14%

8%


40

Key Drivers for Collectibles: Led by Passion

Passion is a major factor in pursuing

collectibles – 70% of the ultra HNIs that we

interacted with confessed that their passion for

owning a collection of exotic and interesting

items drove their purchases. This passion has

made them take steps towards setting up

communities to promote art and to collect exotic

items. For example, a prominent Mumbai-based

family has set up a foundation to promote art

and has opened up their entire collection to the

public. Not only this, they provide assistance in

developing art galleries in the city. It would not be

long before they pursue professional courses to

take their interests to the next level.

About 63% of the ultra HNIs we surveyed

consider it a matter of pride to own and display

collectibles. Many prominent personalities have

long collected (sometimes for generations)

artifacts that represent India’s magnificent past

and its rich cultural heritage. In fact, for 28% of

the ultra HNIs we talked to, traditional values

drive their purchases.

It is time that these collectibles – from exotic

wine collections, to expensive paintings, to classic

cars – are looked at as ‘passion investments’.

Worldwide, wealth managers and consultants

track the value of these investments for their

clients. Although these are not a prominent asset-

class in India yet, they are likely to become one,

very soon. Rising interest in collectibles among

India’s ultra-rich could open up these passion

investments as a new asset class.

A Mumbai-based family has set up a foundation to

promote art and has opened up their entire collection to the

public apart from providing assistance in developing art

galleries in the city

What Drives Ultra HNIs’ Purchases of Collectibles?Most are driven by passion and consider these status symbols


70%Passion 63%Status

28%

Tradition

Investment

20%Networking20%

Spends

41


42

onflicts relating to succession are almost as old as

recorded history. Most famous Indian epics have

an undertone of problems related to, and the

importance of succession. Even as literature and

reality demonstrate how important this area is, Indian business

families have not really given this issue its due. Wealth can grow

manifold and be preserved for many generations if a well-

defined and well-thought-out succession plan is in place.

Problems in succession planning take many forms – ‘The

Aurangzeb syndrome’ is a classic case of the potential heirs of

the family fighting over the succession of the family estate –

something that recurs fairly regularly in corporate India. All

too often, we also come across the ‘Dhritarashtra complex’

where the patriarch or matriarch has a clear preference for one

family member, leading to problems among potential heirs. In

the past, we have seen cases where such a preference has even

taken precedence over merit.

As the concept of succession planning has moved far beyond

just dividing the gold amongst family members, and as

meritocracy plays a vital role in the right fit, finding the right

successor is becoming very important. In this section, we

explore recent trends and changes in succession planning

among India’s ultra HNIs.

c


98%of Ultra HNIs believe in Succession Planning

PLANNINGDeciding the next in line

81% of them give it high importance

SUCCESSION

Spends

43

Passing the TorchAs ultra HNIs move through various stages of

their life and build growth strategies to deal with

the changing business environment, the issue

of succession becomes critical to ensure smooth

functioning of their businesses, and for the

financial security of their family members.

Today, most ultra HNIs understand that

succession planning is a continuous and proactive

process, rather than a reactive one. Their plan

involves identifying potential leaders, grooming

them, and encouraging them to look beyond their

immediate responsibilities. This translates

into vision-building, better teamwork, and

effective performance — both for the successor

and the business.

Recently, a north-based industrialist went through

a feud over the family’s wealth and business due

to lack of a proper succession plan leading to

misunderstandings between family members.

Such episodes serve as a wake-up call for ultra

HNIs and push them into planning for succession

well in advance.


Motives of Succession PlanningWell-being of the family remains a major driving force

35%30%

Ensure well-being of immediate family

Make family capableand independent

Contribute to growth and ringfencing family business

Reduce family / internal disputes

15%

12%

8%

Ensure the well-being of other stakeholders


44

Methods of Succession Planning: Investing on the Future With the changing education paradigm in

India, ultra HNIs are making way for the next

generation in their enterprises quite early on.

Successors are being inducted in businesses at

an early age; they are getting involved across

functions to understand nitty-gritties, and

to build relationships with key people in

an organisation.

We have seen this in the past – successors joining

in as management trainees in prominent business

houses in India, receiving insight into functions,

and working their way to the top. This makes

the transition smooth for key parties involved –

employees, family members, investors, and

other stakeholders.

During our interactions, we noticed that a few

ultra HNIs are even working on a blueprint to

get all stakeholders on board to understand the

succession exercise. There are many factors that

affect ultra HNIs in the process of succession

22%

1-2 years

Time for Succession PlanningUltra HNIs take about five years to plan efficient succession

Over 5 years

%4335%

2-5 years


planning, including the type of business, size of

company, and existing leadership structure. These

factors affect the organisation, as they influence

productivity, reputation, brand image, and

employee morale. Our survey revealed that 43%

of ultra HNIs prepare for at least five years to put

an efficient succession in place, while another 35%

take anywhere between two to five years.

Preparation for succession planning happens

majorly through a formal education – seen in 45%

of ultra HNIs. For 22%, strategic involvement in

business decisions serves as a means for grooming

The son of a leading industrialist completed his technology management course from a leading university in the

United States of America while undergoing hands-on training in

their organisation

Spends

45

the next generation. Other ways include –

demonstration, exposure to business scenarios,

and formal and informal mentoring.

Leading universities in India and abroad have

started offering entrepreneurship and family-

business-management programs and a growing

number of ultra HNIs send their children and

family members to these programs. For example,

the son of a top industrialist completed his

technology-management course from a leading

university abroad while undergoing hands-on

training within their company.

These programs help participants understand

their businesses better, prepare them to sustain

through phases of transition, and enable them

to grow their businesses in an environment of

increased competition.

Importantly, these programs benefit not just

the participating students, but also their family

businesses. This is because through these

students, other members of the family are able to

learn and understand from each other, thereby

enabling continued success and reducing conflicts

in a family-managed business.

In ‘successor induction’

they join in as management trainees and

work their way to the top

How do Ultra HNIs Groom Potential Successors? Educating and strategic involvement in business decision are the most prevalent methods


45%Education

22%Strategic Involvement

24%On-groundMentoring

6%Documentationof best practices

3%Informal

Mentoring


46

Identifying the Right Candidate

Traditionally, succession planning among ultra

HNIs largely meant dividing assets among the next

generation, but it is not that simple any more. The

phrase is gaining a wider role and significance in

the current scenario. To find suitable successors,

ultra HNIs are making concerted efforts with

sophisticated methods and strategy. They are

devising elaborate models to sharpen their

succession and development practices.

Broadly, there are two approaches for succession

planning – one, where ultra HNIs look at

harmonising expectations with the family

members before drafting a succession-planning

blueprint; two is more about dividing the empire.

Daughters are becoming

an integral part of succession

planning. The daughter of a

leading industrialist recently

played an active role in business

expansion through acquisition

and has also led the company’s

foray into new sectors


The Pool of Potential SuccessorsUltra HNIs often choose children and ‘high-potential’ family members

54%

Kids

39%

High-potential family members

High-potential external candidate

Non-immediate family

Friends

4%2% 1%

Spends

47

The first approach, while superior, is a difficult

one due to the struggle involved in bringing

all stakeholders on board; however, if successful, it

leads to finding wider acceptance, an

undivided group with higher resources, a bigger

balance sheet, and eventually, a bigger impact on

the marketplace.

For instance, an infrastructure heavyweight

recently took this approach to establish a ‘family

constitution’, and to make each member of the

family understand relationships within the group.

He hopes that these moves will eventually lead to

effective succession.

Succession planning is becoming increasingly

gender agnostic – a major shift among ultra HNIs

is that they are trying to include their daughters

in their succession discussions. Previously largely

ignored, daughters are now seen taking on

active roles in their family businesses. Ultra HNIs

Finding the right person for the job, even an outsider with professional skills and necessary education, is

taking precedence over keeping control within the family

are training their daughters and handing them

crucial roles. For instance, the daughter of a

leading industrialist played a very active role in

business expansion through acquisitions, and also

in her company’s foray into new sectors. Another

example is one of India’s richest families involving

their daughter in the telecom business.

With changing times, business families are

becoming keener on finding the right person for

the top job. This would mean opening up to the

idea of finding this person even outside the

family – someone with professional skills and

necessary education.

Although currently, successors from non-

immediate family and professionals are less than

10%, the trend is likely to pick up. Recently, one

of India's leading consumer-goods companies with

a long family history appointed an outsider to

lead the group.


48

Implementation of Succession Planning

Assessment is a key practice in effective succession

planning. There is no widely accepted formula

for evaluating the future potential of leaders,

but there are many tools and approaches

that continue to be used today, ranging from

personality and cognitive testing to team-based

interviewing and simulations.

Mode for Succession Planning Wills are the most common instrument

Will8218% Private Family Trust


%

How Ultra HNIs Plan their Succession Most prefer planning for succession themselves

Involve External Agency

27%

Close Confidants73%


In our survey, 73% ultra HNIs said that they prefer

planning their succession with close confidants.

Others look for advice from external sources

such as chartered accountants, consultants, and

wealth managers. People are also gradually

relying on professional estate planners, trustees,

and wealth advisors.

In a country where discussion of death was

virtually unheard of, Indians have now started

writing wills. The well-heeled, especially the new

ultra HNIs, have become savvier about preparing

for the inevitable – and their favourite instrument

of choice for bequeathing their riches has turned

out to be the simple will. Trusts are now gaining

traction with many large corporate houses going

down this road.

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49

Counterintuitive as it may sound, Indian

ultra HNI families are involving younger members

of their family right at the onset of succession-

planning discussions.

The younger lot is more educated and open to

ideas and concepts. Our survey disclosed that

70% of the ultra HNIs have commenced planning

of succession at least two years ago, while 62%

of them revisit it at least once in five years with

the aim of incorporating the latest changes in

the family. As SEBI ushers in a new regime of

corporate governance, it has asked companies

to put in place succession planning for top

management and board positions – in line

with best global practices. With the regulator

taking a keen interest in succession planning,

global best practices in this segment will soon be

adopted in India.

Succession planning is not just being treated as

an insurance policy for ultra HNI families focusing

on the continuity of their business – it is slowly

turning out to be a retirement plan for them.

Today, they are not waiting to turn 60 before

they retire. In the past decade, we have seen a

Early Planning = Early Retirements

How Long Ago did they Initiate Succession Planning?Many ultra HNIs have initiated planning for succession

24%10 years

agoWill start later

17%

19%

5%


10%

5-10 years ago

2-5 years ago

2 years ago

Will start now

25%


50

With a focus on corporate governance, SEBI has

taken an interest in making companies have succession

planning in place for top roles

number of ultra HNIs retiring early and choosing

alternate paths for their future. Most of them

are working on succession and retirement plans

simultaneously. They are keen to ensure that their

life after retirement is not dependent on others.

They are opting for various post-retirement funds

and insurance schemes to secure the future for

themselves and their families.

Many are seen working even after retirement,

and in some cases, their risk appetite and business

sectors undergo a change. Take for instance

an ex-head of India’s top conglomerate – after

retirement, he has invested his personal savings in

ecommerce start-ups.

Some ultra HNIs prefer to enjoy the post-

retirement phase in pursuing their hobbies

and passions – for example, an ex-banker from

Kolkata turned to freelance photography and

has exhibited his works at various national and

international forums!

How Often do they Revisit their Succession Planning?Most ultra HNIs visit their succession planning at least once in five years

38%Never

19%1 year

3 years


27%

5 years16%

Spends

51

Education is a long, hard, and human process

and it’s really important that

we give kids the opportunity and

time to be able to meet their

potential

s Mistri is a well-known social activist,

educator, founder of the Akanksha

Foundation, and CEO of Teach For India.

Her dedication to her cause is awe-inspiring and

she strongly believes that quality education is the

only way forward for a better tomorrow for India’s

underprivileged children.

Akanksha is a non-profit organisation, which

provides children from low-income communities

with a high-quality education, enabling them to

maximise their potential and transform their lives.

Currently, it reaches out to over 5,000 children

through two models: the after-school model (where

centres support each child by providing a strong

educational foundation, help them have a good

time, inculcate self-esteem and values, and assist in

planning for a steady-income livelihood) and the

‘school project’ model (opening high-quality schools

for under-privileged children in partnership with

local municipalities).

M

P R O F I L E

Shaheen MISTRI


52

Our goal is to reach a million children in five years, which is a massive jump, but we do not want to compromise the quality of what we give our children in that process

Growing up, Ms Mistri went to 10 different schools

in five countries. This kind of exposure perhaps

gave her a very early insight into exactly what she

wanted to do with her life. Even as a young child

of 12, Ms Mistri spent her summers volunteering

with disadvantaged children. As a teenager, she

was already looking for volunteering opportunities

to work with children. When she visited her

grandparents in Mumbai, she was appalled by the

sharp contrast in the living conditions of the rich

and poor in the city – and decided to do something

about it. The best way to bridge this gap was to

educate children, she decided. In her own words,

“My first organisation Akanksha started as a college

project and a belief that education is important,

kids are important, and because I just enjoyed being

with kids. Slowly, a community and classrooms with

disadvantaged children grew around me.”

In 2007, Ms Mistri met Wendy Kopp, the Founder of

Teach for America, and was inspired to start a similar

initiative in India under the ‘leadership at the core

of the solution’ model. Her Teach For India initiative,

which she began after Akanksha had already

flourished for almost 17 years, was a result of her

desire to scale Akanksha’s model.

Teach For India's mission statement is that every

child deserves to attain an excellent education. It's

aim is to prove that no child’s demographics should

determine their future. It has grown from 2,000

children in its first year to 38,000 children today. In

terms of employees, Akanksha has 200 and Teach

For India has 250 and growing. Teach For India is

present in seven cities (Mumbai, Pune, Bengaluru,

Delhi, Chennai, Ahmedabad, and Hyderabad).

Akanksha has eight centres and 16 schools in

Mumbai and Pune – the organisation celebrates 25

years of existence this year.

Besides working for children, Ms Mistri says she

is ‘obsessed’ with animals, especially stray ones.

She is also very passionate about creativity and

art – from film to music to fine arts to painting. She

loves travelling and is an author. “I have written a

book for Teach For India last year called ‘Redrawing

India’ and published a couple of children stories

about a little crocodile called Miss Muglee, which

were illustrated by Akanksha kids,” she says with an

indulgent smile.

While Akanksha is not an impact investment,

Ms Mistri has valuable words of wisdom for the

education sector. “Organizations becoming more

professional and being able to tell their story and

operate at a scale – this is a big opportunity, as it

resonates with what investors want,” she

concludes. In this sector, making an investor or

donor a partner in the larger vision and giving

them an opportunity to actually engage is a great

idea, she says and adds that 2% CSR is a really good

opportunity for the sector.

Just seeing our children grow and change, and then going out there and wanting to change the society – that to me is really

where the power of the movement is. Our children as young as 5th, 6th, and 7th graders say that I will change my community –

this is just incredibly fulfilling.

Spends

53


54

RENEWABLE

or more than four decades, renewable energy has

been an important component of India’s energy

planning process. Social and economic growth are

top-priority for the government, and it is increasingly seen

using renewable energy to drive this agenda.

Ultra HNIs have always been enthusiastic about adopting and

promoting renewable energy. Their various initiatives have made

them frontrunners in adopting renewable-energy technology;

many have effectively integrated renewable energy into their

lifestyle and businesses. Popular programmes include water and

energy conservation, recycling and reusing plastic bags, and

waste segregation.

Committed to a greener lifestyle


Energy efficiency has been included as one of the eight missions in

the Prime Minister’s National Action Plan on climate

ENERGY

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55

Ultra HNIs have a positive view on moving towards

the usage of renewable energy, both inside and

outside their businesses. Most of them strongly

believe in an eco-friendly lifestyle and strive to

reuse resources, to plant trees, and to use

electric / alternate fuel cars. They also often assist

in preserving non-renewable energy sources for

emergencies / better uses.

Socially conscious and environment-friendly ultra

HNIs are increasingly adopting ‘green’ building

practices to minimise the footprint of their homes

on the ecology, while maximising comfort. Beyond

the latest luxury bathroom fittings, marble floor

tiles, and technology time-savers, the wealthy are

also investing in insulated roofs, automated sensor

The Importance of Renewable Energy

lights, water-conserving fixtures and fittings,

rainwater-harvesting technology, and external

solar lighting.

Ultra HNIs have long realised the importance and

relevance of renewable energy as a sustainable

option to cater to rising energy demands. They

majorly focus on initiatives such as preserving

and maintaining non-renewable energy sources,

reducing and controlling pollution, and improving

the environment.

They are also increasingly tying up with

commercial and residential high-rises to install

solar panels on rooftops, thus encouraging the

usage of alternate sources of energy. This has not

only turned into a viable business model for ultra

HNIs, but has also made the ‘go green’ lifestyle a

coveted and fashionable one.

A few examples – a Pune-based ultra HNI family

is marketing a line of highly energy-efficient

pumps, while a leading developer in Gurgaon is

focused on making energy-efficient buildings by

using wood instead of aluminium for doors and

windows that reduce CO2 emissions.

Energy efficiency is being recognised as a

‘low-hanging fruit’ in the country’s pursuit of

energy security, inclusive development, and

transition to a low-carbon economy. To fulfil

this, ultra HNIs are investing in employee-

focused activities, such as campaigns to increase

90% agree that this is important for sustainable development

How Many Ultra HNIs Believe in Renewable Energy?

35%

Neutral

Somewhat Agree

Agree

StronglyAgree

55%

%28%


Two renowned ultra HNIs adopted a

tribal village in Odisha; they

installed solar units with two home-lighting

systems in each of the 61

households there


56

awareness, motivation, and involvement in

energy-management activities – with an

ultimate aim of reducing the company’s

energy costs.

Major states in the country have recognised the

need for renewable energy and have set-up

large solar parks. Punjab, for instance, has setup

the world’s largest single-roof-top solar plant

at a cost of `140 crores. Ultra HNIs find such

projects good avenues to increase their exposure

to renewable energy and usually form groups to

invest in such initiatives.

They are also implementing operational and

maintenance practices that take into account the

Types of Renewable Energy Investments by Ultra HNIs60% would like to be or are already engaged in initiatives such as solar power, bio-energy, and wind

Wind Power

53%Solar Energy

Bio Energy

Heat Pump17%

30%

51%

26%

23%

60%

25%

15%

70%

18%

12%


Direct Investment Impact Investment Evaluating

energy-efficiency impact. Many of them have

moved towards making office buildings energy

efficient and retrofitting business processes. State

governments and mobile-app companies are

coming up with car-pooling features, which are

backed by ultra HNIs implementing similar systems

in their offices.

An ultra HNI, who recently completed the

construction of his independent bungalow along

the East Coast Road in Chennai has installed

features such as insulated roofs and walls to

reduce heat ingress, automated sensor lights,

water-conserving fixtures and fittings,

rainwater harvesting technology, and external

solar lighting.

Spends

57

Investment in Renewable Energy: Trailing GrowthOn an average, ultra HNIs invest `15 lakh on solar

energy per year; their bio-energy investments are

a close second at `12 lakh. These investments are

primarily towards solar rooftops and boilers and

wind-driven machineries.

Ultra HNIs are also giving up their rooftops to

install solar power systems. This model is being

used by many solar power companies to increase

their rooftop installation capacities. Industrial

establishments, commercial buildings, malls,

and large gated communities are key targets for

such installations.

The government provides several benefits for

investments in renewable energy – it permits

100% Foreign Direct Investment in the sector and

allows a tax holiday for 10 years for generation

and / or distribution of power from renewable

energy plants – this has attracted many ultra-HNI

investors to the sector.

Specialised financing agencies are also promoting

renewable energy projects, while the government

provides operating subsidies, accelerated

A leading FMCG company has tied up with a

Jabalpur-based cement tycoon for burning its solid waste in the kilns of his cement plant to

generate energy

Drivers for Investments in Renewable EnergyMain reasons include upcoming sector, energy preservation,

stability of returns, and sector growth

Upcoming Sector Energy Preservation

Level/Stability of Returns


Philanthropy

Impact on Local Communities

34%

14%15%

Rank 1 Rank 2 Rank 3

28%

27%18%

15%

31%

29%

20%

15%

15%

3%

13%

23%


58

High Earnings: Renewable Energy is the Next Big Thing

As India’s renewable energy sector marches from

the fringes to the mainstream, ultra HNIs are spoilt

for choice by the numerous opportunities that it

presents, all of which will multiply their wealth

and benefit the environment.

Besides renewable energy as an investment

and business opportunity, ultra HNIs are

avid followers of cost-effective technological

innovations and often actively collaborate with

academic institutes that specialise in these types

of advancements.

Exciting business models are sprouting in this field

as the market potential grows with enough room

for established inheritors and fresh entrepreneurs.

For example, a Delhi-based organisation started by

two young ultra HNIs is providing solar-powered

water-pumping solutions to meet agricultural

irrigation, aeration, fisheries, and drinking-water

needs in off-grid areas.

In five years, they have expanded to 14 states, have

2,200 projects on the ground, and are generating

revenue in millions each year already.

One of India’s largest automobile companies has installed ‘energy saver’ units along with ‘feeder pillars’ to reduce its energy consumption

depreciation, and generation-based incentives

(GBI). These incentives have been one of the most

critical factors in driving investments, especially

into sectors such as solar and wind power.

States, such as Punjab, have inked MoUs worth

`13,500 crore for investment in solar projects and

signed pacts for setting up bio-ethanol plants

worth `6,000 crore. This trend is spreading to

other states such as Gujarat, thus providing

multiple opportunities for ultra HNIs to contribute

to this ‘green cause’ while also making it a viable

business model.

In January 2016, Indian Renewable Energy

Development Agency Limited (IREDA) came out

with tax-free secured redeemable non-convertible

bonds. Ultra-HNI buyers displayed massive interest

and the issue was over-subscribed to almost

double the allocated value.

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59

P R O F I L E

r Vinod Keni is the co-founder and

partner at Peachtree Management

Advisors. He is also on the board of

Indian Angel Network. He is a man who wears

many hats (impact investor, angel investor, and

management consultant). Surprisingly, he says

his journey into impact investing wasn't planned.

He was working for a large donor institution

As there are more success

stories in impact investing, its

familiarity among the investment

community will grow

when he was introduced to this space and soon

joined a firm that was looking at a new fund in

this segment, which eventually ended up raising

US$ 100 million. After this, Mr Keni started

looking at impact investing mostly from an angel-

investing perspective because he realised it was

not just about raising capital, but more about

the expertise provided to the entrepreneur and

M

KENIVinod


60

he puts it “You need to pick it up carefully – is

it solving a larger problem or need? Something

that people really want? Then the next question

is if this is practical and commercially viable? Is it

sustainable?” He admits to shelving many ventures

because they qualified mainly as philanthropic. He

is not overtly optimistic about renewable energy in

India – “It will take some time, it still has significant

challenges in terms of scaling up.”

He believes that impact investing funds should

have returns of high 20s to mid-30s in four years

(minimum holding period), but there are instances

where he has landed up with high teens or even

single digits. As he puts it succinctly, “This is like

any other venture fund – one can have a few

ducks, a few singles, and a few home-runs.”

Mr Keni believes that these segments –

employability and skilling, financial inclusion,

healthcare, sanitation, water, low-cost medical

devices, energy – that are leveraging technologies

for people at the bottom of the pyramid, are likely

to attract maximum impact investment. In fact,

his preferred sectors for investing are fintech and

financial inclusion.

Mr Keni’s other interests include collecting

antique toy trains, travelling, and reading. He

likes travelling to offbeat locations and plans to

go to Ushuaia, Argentina, for his next big holiday.

A large chunk of his investments are in equity

currently, but he plans to shift more towards debt

as the years go by. His real estate investments are

likely to remain steady.

the management team to build a sustainable

enterprise.

Impact investing is challenging. “You look

for enterprises that you think are going to be

sustainable, the attraction for mainstream

professionals to join in is limited because of the

longer gestation period, and it takes a much

longer time to scale these companies up,” he lists.

The capital that comes into impact investing is a

more ‘patient capital’. “You cannot come into it

and exit in two years.” This is where experience

and expertise comes in, he believes.

“Earlier, we saw many people who had passion

and who wanted to make a difference, but now

we are seeing people with passion plus experience

to back that up.” Experience and expertise makes

all the difference according to Mr Keni. “Today,

you are seeing a class of entrepreneurs who are

more sophisticated and experienced – it is a big

boon. You now see experienced professionals who

are stepping in and saying that there is a large

enough need and I know it’s a business that I can

make sustainable.” Budding entrepreneurs and

experienced ones are now actually able to

choose between creating another e-commerce

company, or an on-demand delivery company, or

a social enterprise.

Social investing is still a fiercely debated concept,

he reveals. He says he has had mainstream

investors tell him that all investing is eventually

impact investing. What he is very clear about is

the difference between impact investing and

philanthropy; in the former commercial returns

are very important, in fact, they are a priority

– only then does he consider if the venture will

make an impact. It seems to be a fine balance – as

The number of companies that would fail will be high and even the money lost in this sector will be considerable, but these are just cycles before the sector matures, and consolidates; eventually, the number of failures will decrease

Spends

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62

ADVANTAGE

Less inclined towards equity

ver the last few years, the government has liberalised

foreign investment policies and created a very

favourable investment environment across all segments

of India’s economy. Both manufacturing and services

have received a boost under the initiatives 'Make in India', 'Start

Up India', and 'Digital India'.

In the past year, sentiment towards the government’s

performance and policies has continued to be positive.

Actions such as RBI reducing interest rates, listing of smart cities,

and clearing several road projects have strengthened ultra-HNI

investments in the domestic market.

The investment mood has remained positive. While ultra HNIs

have been less inclined towards equity this year due to the

lacklustre market performance, they have increased allocation to

other segments such as real-estate, especially commercial, and

debt. They expect the investment climate to remain bullish on

strong economic growth.

O

INVESTHOW THE ULTRA HNIs

REAL ESTATE

Investments

63

Primary Business Remains Main Source of WealthOur survey revealed that this year the main source

of wealth for almost half of India’s ultra HNIs is

the success of the primary business; last year, this

figure was 41%.

There was also a corresponding decrease

in the number of ultra HNIs whose primary

source of wealth is through sale of business. In

conjunction, these trends indicate that they are

more interested in building long and sustainable

businesses.

A quarter of the ultra HNIs we polled have

created wealth from the real-estate sector, while

for others the primary wealth source is personal

income and equity investments.

Entrepreneurs and professionals predominantly

have a single source of wealth. However,

inheritors tend to diversify from their established

businesses, which has led to wealth augmentation

from real estate for them.

A new category of entrepreneurs are also

successfully investing in social entrepreneurship

businesses that focus on sustenance. Due to their

passion and vigour, the ‘impact investing’ segment

is rapidly gaining ground in India.

10%

5%

14%

42%

29%

Professional

Equity, ESOP

Sale of Business

Real Estate

Success inBusiness

Personal Income

3%

57%9%

17%

14%

Entrepreneur

3%

48%

8%

25%

%

Overall

16

41%

10%

39%

9%Inheritor 1%


Wealth Sources of Ultra HNIs Across CategoriesExcept for professionals, the primary business is the main source


64

Real Estate and Debt Investments see an IncreaseIndian ultra HNIs broadly invest across equity, real

estate, fixed income, and alternative investment

assets. This year, the trend of increasing equity

portions in ultra HNIs’ investment portfolio saw a

reversal mainly due to the near 20% fall in Indian

equities. Small-cap stocks, which were among

the top picks and performers in the previous two

years, took a hit this year.

The stock markets dipped due to a variety of

reasons including global events such as a sharp

fall in the Chinese stock markets in just three

months, and a drop in foreign inflows into Indian

stocks. While increasing participation of domestic

institutions countered the fall to an extent, the

stock markets still saw a negative trend.

Realignment in the equity portfolio of ultra HNIs

led to a corresponding rise in the other three

asset classes – real estate, debt, and alternate

assets – lending stability to returns. In the debt

market, tax-free bond issuances by public-sector

undertakings elicited a positive response from

ultra-HNI investors.

Real estate investments, which fell last year,

saw an increase this time. The Real Estate

(Regulation and Development) Bill of 2015,

which came into force this year, is widely

expected to ease concerns around project

development and delivery and bring about

transparency and accountability.

Commercial properties are the biggest and most-

stable attraction in the real-estate market for ultra

HNIs, as they are proving to be more profitable

than residential ones. Cities such as Mumbai,

Bengaluru, Hyderabad, and Delhi NCR are

Certain series of tax-free bonds issued in FY16 such as from HUDCO, NHAI, and NABARD

offered a yield of 7.00-7.04%, which translates into a pre-tax yield of 10.5%

Investments

65

the hubs for commercial properties, with major

domestic corporate offices and multinational

companies opening their branches there. The

residential segment is also expected to pick up but

with a lag as the demand in small centres picks up

on increased interest from ultra HNIs.

Commodity investments are also gaining the

confidence of the ultra-HNI community. Impact

investments (as part of alternate investments)

have also captured their imagination. With

strong economic growth expected in India

over the next few years, the investment mood

continues to be bullish.

FY 2015

Equity Real EstateDebt AlternateInvestments

FY 2011FY 2012FY 2013

FY 2014

35% 32%

29%4%

38% 24%

29%9%

34% 20%

37%9%

34% 29%

30%7%

45%

Ultra HNI Investments Across Asset ClassesEquity allocation decreased, alternate investments rising


26%9%

20%

FY 2016

39%

28%11%

22%


66

COMMODITIES ommodities are among the world’s

largest financial markets. Initially

conceived as a hedging platform for

producers and consumers in local

markets, these markets now provide sophisticated

investment and risk-management opportunities

for ultra HNIs. Globally too, commodities such

as oil and gold have become favourites amongst

institutional investors.

Most ultra HNIs invest in commodities, gold is a favourite

Government of India started Gold Monetisation

Scheme under which resident Indians can deposit gold

and receive gold bonds. This scheme has piqued the interest

of ultra HNIs

Investments

67

Exposure to CommoditiesOf the five BRICS economies, four slowed or

even contracted in 2015. China’s economy

continued to slow down and its move away from

commodity-intensive activities weighed on global

trade and commodity prices.

Brazil and Russia, two large commodity exporters,

are in deep contraction that is also accompanied

by currency depreciation, above-target inflation,

and deteriorating public finances. In order to

counter this volatility in raw material input

prices, Indian ultra HNIs are using the

commodity markets to limit their exposure, and

also to make gains.

Our survey revealed that 72% ultra HNIs invest

in commodities; of these, 40% have invested

about 5-10% of their assets while 39% have

11-20% exposure. The commodity markets in

India are growing, which means their potential is

huge, particularly because commodities are very

relevant to India’s economic growth.

How Much do Ultra HNIs Invest in Commodities?49% of ultra HNIs invest more than 10% of their assets


5% 10%

40% 15%11%

20%

20%

16%

20%

10%11%

5% -

- -

19%

Less than

More than


68

Allocation of Investment in Commodities

According to our survey, 78% ultra HNIs

prefer gold and silver for their commodity

investments; out of these, 59% consider gold a

good investment opportunity, also because it is

traditionally regarded as auspicious.

Investment in gold varies – from jewellery, coins,

bars, to ETFs. Gold certificates and bonds are the

Investment Allocation by CommodityGold and silver command large chunks at 59% and 19%


Gold

59%

Silver

19%

Energy

6%

Agri Based Others

4% 3% 9%Metals

latest additions to this list. Apart from gold, 19%

ultra HNIs allocate funds to silver and 6% invest in

energy commodities, which is the next emerging

sector globally. In line with this global trend,

commodity exchanges in India are also offering

energy products as a trading opportunity to

which the ultra HNIs are warming up and taking

restricted exposure.

Investments

69

Sources of Commodity PurchasesTo attain better returns from commodity

markets when multiple avenues are available

for purchasing them, ultra HNIs are taking more

informed decisions about performance and

investments. The introduction and evolution of

a strong regulatory oversight and framework in

commodities has provided a fillip to the sector and

boosted ultra HNI confidence levels.

Physical buying is the preferred purchasing

method for 80% ultra HNIs investing in gold and

for 74% of those investing in silver. However,

when it comes to energy-based commodities,

more than half invest directly through exchanges,

online portals, and brokers.

For agri-based commodities, 48% ultra HNIs

prefer instruments that have an underlying

commodity as the driver while 39% prefer direct

investments through exchanges; the latter ratio

is lower than the former because of the relatively

lower trading volume of exchange-traded agri

commodities and trading restrictions often

imposed to curb price inflation.

Gold

80% 13% 7%

Silver

74% 11% 15%

23% 53% 24%

Energy

Metals

24% 38% 38%

Agri Based

13% 39% 48%

Physical Buying Direct Investment through Exchange / Portal / Brokers Commodity Stocks

Where do Ultra HNIs Purchase their Commodities?More physical buying in gold and silver; energy investments are mainly through exchanges



70

Future Investments: CommoditiesWith the merger of FMC (Forward Markets

Commission) with SEBI (Securities and Exchange

Board of India), the future of Indian commodity

markets is likely to be bright in terms of both

investments and returns.

SEBI has initiated a number of measures to

streamline the regulatory structure and processes

in these markets, all of which are towards

increasing market integrity and liquidity,

thus helping the growth of the commodity

derivatives market.

As the number of commodities traded is

increasing, ultra HNIs are diversifying their

investment risk by participating in different

segments. This is an evergreen market, as it

involves trading of products that are as varying as

precious metals and agri products.

In our survey, 34% ultra HNIs believed gold is a

good investment opportunity for the future too,

while 25% picked silver.

Energy-based commodities (such as crude oil)

and agri-based commodities (such as soya,

cotton) were preferred by 12% ultra HNIs each.

Introducing index derivatives and commodity

options would be a great step towards

broadening the market. Potential participation

from foreign investors, once permitted, will also

boost market liquidity. With India set to become

one of the fastest-growing economies, ultra HNIs

will continue to view commodities as a good

investment opportunity.

Preferred Commodities for Future InvestmentsPrecious metals, for both current and future investments


Gold 34%

Silver

Energy (Crude Oil)

Agri Based

25%

12%

(Soya, Cotton, Jute, etc)

Metals

Others

9%

12%

8%

Commodities

(Nickle, Lead,Copper, etc)

Investments

71


72

IMPACT INVESTMENT The Fortune at the Bottom of the Pyramid

he ultra-rich have almost always been great

philanthropists. Their desire to share their bounty and to

do good for the greater society is ingrained and deep-

rooted. However, for the last few years, mere charity has

not been enough to satisfy their altruistic propensities.

They want to build enterprises that not only create a positive

difference in society, but ones that are self-sufficient,

economically viable, and lasting; essentially, sustainable social

enterprises. This is the cornerstone of impact investing, which is

a growing trend among the elite.

Through impact investing, ultra HNIs derive twin benefits – one,

investing in ventures that provide good returns (albeit over a

longer timeframe) and two, the satisfaction of having created

enterprises that will make a lasting social difference, a feeling

that is hard to put a price tag on. This section explores the

trends in ultra-HNI impact investments.

Investments

73

Almost Half are into Impact InvestingThe impact investments segment, almost unheard

of until a few years ago, is receiving close scrutiny

of late. It seems to have become very popular

among ultra HNIs; nearly half of the ones we

surveyed had some exposure to this novel

investment arena.

This segment not only satisfies the ultra HNI’s

quest for new niche avenues for investment, but

also delivers the satisfaction of wealth creation

while making a progressive difference to society.

Though the sector is at a nascent stage in India,

it has seen fast-paced growth over the last few

years. While the general interest for impact

investments is high, professionals seem to have

the highest inclination, with 67% saying they

have exposure to these investments. This could be

primarily because of their experience working in

or being associated with some of these sectors.

Among inheritors, 50% said they have an

exposure to impact sectors, mainly as a

diversification avenue from their core businesses

that also gives them high returns.

Among entrepreneurs, only 37% had an exposure;

they said it was difficult because these kinds of

investments might require their involvement (in

addition to capital), which proves cumbersome.

However, established entrepreneurs are likely to

show inclination towards such investments, our

survey revealed.

Impact investments is at

a nascent stage in India and

is seeing fast-paced growth

due to interest from ultra HNIs

Nearly Half of Ultra HNIs have Exposure to Impact InvestmentsMore professionals tend to have exposure to these investments


Entrepreneur Inheritor Professional Overall

44%37% 50% 67%


74

Sectors in Impact InvestmentImpact investments target companies catering

to basic needs in an effective way, which would

otherwise have remained unfulfilled.

We saw in our survey that most ultra HNIs are

inclined towards three main sectors within impact

investing – financial services, clean energy, and

affordable housing. This preference also translates

into on-ground investments, with microfinance in

financial services being the hottest sector within

impact investing.

Successful exits in microfinance coupled with

good returns have added to the sector’s allure.

The Reserve Bank of India’s recent mandate to

a few microfinance institutions to set up ‘small-

finance banks’ has translated into renewed vigour

and interest in the sector with prominent Indian

family-owned companies actively investing in the

sector. Additionally, as seen in the lifestyle section,

the interest of ultra HNIs in clean energy reflects

in their investment preferences – this is also

among the top sectors for impact investments.

Our interactions revealed that most ultra

HNIs that already have an exposure to impact

investments end up increasing their exposure.

Typical investments in this segment were

below `50 lakh for financial services and clean

energy, but up to `1 crore for

affordable housing.

RBI’s recent mandate to set up ‘small finance banks’

has translated into renewed vigour and

interest in the sector

Sector-Wise Preference for Impact InvestmentsFinancial services, clean energy, and affordable housing are favoured


Financial Services

Clean Energy

Affordable Housing / Sanitation

Affordable Health

Affordable Education Sector

Rural Supply Chain

Technology Services targeting BoP Space

49%

85%

82%

82%

64%

49%

47%

Investments

75

Drivers of Impact Investments

Capital pumped into ventures that created a

social change or into social entrepreneurship

ventures was once considered ‘not-for-profit’;

however, this view is gradually changing. The

impact investments space is receiving traction

from the ultra-rich in recent times – key drivers

for this are attractiveness of the sector and

stability of returns. Other drivers include the

social and environmental impact that these

investments create. While impact investments are

expected to provide stable earnings, they typically

have higher gestation periods and are turning

out to be medium to long-term investment

avenues for ultra HNIs. Given their prolonged

nature and relatively small size (of the investee

companies), efficient use of capital and efficiency

of the investee company is becoming a major

consideration. Due to the level of interest from

ultra HNIs in this segment, wealth managers have

started incorporating impact investment in their

suite of products.

The policy push from the government in terms

of National Solar Mission (to promote solar

energy) and ‘Housing for all by 2022’ (to provide

affordable housing) are also likely to have a

positive bearing on the interest levels of ultra HNIs

in this space.

Major considerations

for impact investments

included efficient use

of capital and efficiency of the

company


Sector Attractiveness

Stability of Return

Social Impact

Energy Preservation

Environmental Impact

27%

23%

21%

16%

13%

34%

31%

13%

16%

6%

First Sector Preference Second Sector Preference

Key Drivers for Impact InvestmentsThe ultra-rich mainly look at sector attractiveness and stability of returns


76

Investment ModesImpact investments predominantly happen

through three key routes – private equity, venture

capital, and hedge funds. Our survey showed

that 54% of ultra HNIs preferred the private-

equity route for making impact investments

(an established mode), while 32% preferred the

venture capital route for making bets on new

initiatives.

Interestingly, they favoured the private-equity

route for investments in financial services and

clean energy (where companies have some

vintage), while the venture capital route

was popular for affordable housing (where

entrepreneurs’ fresh approaches towards

providing such housing took precedence).

Our survey revealed that ultra HNIs expect

investments through both venture capital and

private equity routes to pick up in the future. The

hedge fund route was not popular – very few

were looking at that option.

Another avenue that was rising in popularity

among ultra HNIs was direct investments through

their ‘family offices’. These family houses

independently scout for opportunities and

conduct their own due diligence before investing

into ventures.

Global funds that have an impact investment focus

are setting up shop in India and bringing in their

expertise in managing these companies

Impact Investment ChannelsPrivate equity is the most common mode


Private Equity

Venture Capital

Hedge Fund

54%

32%

14%

Investments

77

edicated, passionate, enlightened, driven,

and visionary – these are just a few of Ms

Roopa Kudva’s best qualities, all of which

are currently focused on her latest undertaking –

impact investing.

Following a 23-year career with rating agency

CRISIL – including eight years as CEO, during

which she successfully grew the rating agency

into a diversified analytical company, including

proprietary research outside India – Ms Kudva

has chosen to enter the relatively new impact

investing sector. Since 2015, she is a partner and

Managing Director of Omidyar Network India

Advisors, the India arm of the Silicon Valley-based

philanthropic investment firm.

Her transition to impact investing after such a

long stint in a ratings and analytics firm stem from

her desire to make a meaningful and sustainable

difference in people’s lives. As she puts it, “I knew

it was time for me to do something different, and

I am deeply inspired by the entrepreneurs

we fund and work with every single day. They

are young, idealistic, and know no fear,

deviating from past generations in their altruism

and single-minded focus on improving

society”

P R O F I L E

KUDVARoopa

D


78

I hoped to find a position where I could leverage

my skills and capabilities to make an impact on the

world.”

Before assuming this new role, Ms Kudva was

not very familiar with impact investing, but the

more she learned about Omidyar Network, the

more she realised that this was the model she had

been seeking. The organisation leverages both

for-profit investments and non-profit grants with

an ultimate goal of driving sector-level change.

“This gives us the flexibility to support the best

entrepreneurs and organisations, no matter how

they are structured,” she says. Ms Kudva says this

model is incredibly powerful, and she is confident

that it will provide her with the platform that she

desires. “I was impressed with Omidyar Network’s

team of incredibly accomplished and driven

people – if they chose to dedicate their careers to

impact investing, I knew it had great promise.”

She believes that impact investment is coming

of age in India. “I can confidently say that

impact investing’s time is now – especially here

in India,” she reiterates. “We have an incredibly

favourable ecosystem for entrepreneurship:

funding availability for start-ups has increased,

government policies are encouraging innovation

and entrepreneurship, and our best and brightest

students are choosing entrepreneurial paths. We

also have significant drivers of social impact that

are gaining momentum: more and more people

opening bank accounts, increased opportunities

for skills training, and perhaps most significantly,

a remarkable penetration of mobile phones that

connect people.”

She believes that growing smartphone

penetration and innovative business models

enable greater access to basics such as jobs,

education, healthcare, transportation, and

financial services. This combination of momentum

and a supportive environment makes it a

phenomenal time for impact investment and

offers huge opportunities – both for Omidyar

Network and other such companies. Her company

follows a flexible capital approach. She says, “We

use commercial investing instruments when they

are appropriate and more ‘patient’ vehicles for

problems that don’t lend themselves as well to

traditional instruments.” It focuses on investments

in five areas: emerging technology, education,

financial inclusion, governance and citizen

engagement, and property rights.

Ms Kudva believes that as the industry continues

to gain momentum worldwide, not only will

India receive more impact investing interest from

foreign entities, but there will be a considerable

increase in domestic investments as well. In her

opinion, sectors that are likely to benefit most

from this growth include property rights, mobile

money, financial inclusion, and education and

skilling. “The proliferation of smartphones in

India has been remarkable, and has dramatically

improved access to education, jobs, and

healthcare, offering incredible opportunities

for investors looking for business models that

have a clear social benefit,” she says. Her firm,

Omidyar Network, is committed to doubling its

India investments to US$350 million by 2020.

“We encourage other HNIs and families to join

us in deploying their capital in investments that

produce financial returns alongside significant

social impact,” she concludes.

“Impact investing is at a tipping point. India already leads the region in number of impact investments, and we believe that trend will continue

Investments

79

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and exclusion of liability which operates to the benefit of Kotak Mahindra Bank Limited ('Kotak'). Kotak does not guarantee the accuracy, adequacy or

completeness of any information contained in the report and neither shall it be responsible for any errors or omissions in or for the results obtained from

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