Any cyclical downturn impacts revenues temporarily, says Anand Rathi

'Wealth creation on the ground is clearly visible,' says chairman of company that has an Rs 660-crore IPO

Anand Rathi Wealth will become only the second pure-play wealth management firm to be listed (IIFL Wealth Management being the other). The company’s Rs 660-crore initial public offering (IPO), which closes on Monday, has so far seen three times subscription. Anand Rathi, chairman of Anand Rathi Wealth, talks to Sundar Sethuraman about key aspects of the business. Here are edited excerpts from an interview.

Anand Rathi Wealth has assets under management(AUM) of Rs 29,470 crore. How do you plan to increase the AUM?
 

Historically, we have made yields of around 1.3 percent on the AUM. Increase in AUM is a function of four things -increase in market value of assets due to market movements, fresh inflows from existing clients, inflows from new clients acquired by existing relationship managers (RMs) and new RMs bringing in new clients. We are focused on all these growth drivers. Historically, our AUM has grown 22-23 per cent per annum and this could be an indication of growth in years ahead.

How is Anand Rathi placed to handle competition from standalone private wealth firms and bank-backed firms?

Anand Rathi has built a strong position in the HNI (high networth individual) segment over the years competing against global banks and other wealth management firms. We are already the largest non-bank non-aggregator distributor of mutual funds (MFs) ranked by commissions earned last year. The strategy is to increase focus on our chosen client segment and build a strong value proposition for them. This is a business driven by word of mouth, and satisfied existing customers are the best sources of new client acquisitions in the form of referrals. Our strategy of focusing on the HNI segment of Rs. 5 to 50 crore and giving them a value proposition meeting their goals, are our USPs.

How has the recent market boom benefited the company?

A reasonable portion of our revenues is linked to market levels. As the markets have moved substantially higher over the last 12 months, our trail incomes on equity mutual funds have also risen in tandem. You can see that in the first five months of FY22, we have already achieved revenue of Rs 169 crore, 60 per cent of last year’s revenue) and profit after tax of Rs 51 crore, 2.1 times of last year’s profit.

Will a sharp correction or a downturn in the market hurt private wealth business?

Any cyclical downturn will impact revenues temporarily. But our focus is to generate long-run returns for clients with consistent long term asset allocation with proper risk management. So while profitability will be impacted in the short-term, we have seen revenues and profits bounce back quickly with markets.

What impact do total expense ratio (TER) reduction, shift to passives and direct investing have on MF distribution business?

While we don’t expect any TER reduction in the near to medium term, as expense levels in India for customers are now at par with most developed markets. Any future drop in TERs should be more than counterbalanced with volume growth in the business. As far as direct investing is considered, it’s an option available for nearly eight years. We haven’t seen any impact in our business as we focus on a client segment that not only needs advice but is also willing to pay for quality advice.

What have been the key regulatory changes on the private wealth side? How do you see them?

There have been significant changes over the years with TER changes, segregation of distribution and advisory businesses, change in minimum ticket size for PMS, concept of accredited investors. We are largely now in line with global market regulation but the regulatory landscape is constantly evolving based on market environment and as such we continue to build a business model which is adaptable and agile.

We talk about the under penetration of the private wealth industry, growing number of HNIs. How’s the real situation on the ground?

Indeed, the wealth creation on the ground is clearly visible. Not only are the number of families with large wealth increasing quite rapidly, they are also increasingly recognising the need to seek quality advice as the quantum of wealth grows. As long as the sums involved were smaller, a lot of people in India have been historically comfortable in taking decisions largely independently with few inputs from outside. But now as wealth levels reach what we call generation wealth, the wealth being of such size that it will not be consumed by today’s generation, but needs to be preserved and grown for future generations in the family, there is a recognition that professional help is needed in managing it in a systematic manner. 

Are your clients seeking exposure to crypto? What is your view on crypto as an investment?

Clients are discussing it in pockets, but we have not seen many clients seeking exposure to crypto. We believe that while the underlying blockchain technology of crypto holds great promise, most cryptos themselves have no inherent underlying value. The current value is merely derived from the belief that someone else will be willing to pay a greater price down the road. This matter is under consideration of various Governments for creating regulatory framework and only then there will be greater clarity about its use as investment.