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How Sachin Bansal could use his billion dollars to earn the next billion(s)

Some of the country's top wealth managers offer advice on how Bansal should invest the $1 billion that he could get for his 5.5% stake in Flipkart to earn the next billion, or billions

Sachin Bansal  |  Walmart Flipkart Deal

Sachin Bansal Flipkart co-founder Sachin Bansal

Dear Mr Bansal, In the recently concluded Flipkart-Walmart deal, the world’s largest within the e-commerce industry, your 5.5 per cent stake in the company that you have decided to exit completely will garner you a cool $1 billion. You have achieved what most entrepreneurs in the country hope to. Yes, you want to catch up on gaming and brush up your coding skills, but there is the small matter of deploying this $1 billion. Business Standard got some of the country's top wealth managers to offer their advice on how you should invest this hard-earned and richly deserved corpus to earn the next billion, or billions.

Set up a Family Office, support other start-ups: Anshu Kapoor

Set up a Family Office, support other start-ups: Anshu Kapoor 1 / 3 Anshu Kapoor, head, Edelweiss Private Wealth Management

The success of Flipkart is a game-changing, new-age entrepreneurial story. The Flipkart founders have achieved what almost all start-up founders hope to. The entrepreneurs who realise big sums of money by exiting their businesses face several immediate questions: One, what is the tax incidence and how should this be provided for? This gets more complex if part of the funds is received offshore (for companies held through offshore ownership structures). Two, what criteria should be used to select a financial advisor? Three, what financial solutions should be considered for deploying proceeds in relatively risk-free (usually for one-six months)? One of the best ways to quickly form an understanding is to speak to peers who have been through similar business exits. Once the above are taken care of, the next set of questions that need to be addressed are: What are the long-term financial aspirations, professional goals and family considerations? What criteria should drive construction of the financial portfolio? And what legal vehicles or structures need to be created to address the above? And finally, what help or capabilities are needed to enable, monitor and review them? You could consider setting up a Family Office, both in India and offshore, as needed. In India, a trust/LLP (limited liability partnership) creation would be advisable as a vehicle for holding and investing wealth. For offshore, a jurisdiction like Singapore has an entity classification of a Family Office which has multiple benefits. Since managing the money is not your core task, you should appoint or hire a Family Office team that will take care of the capital under a predefined scope, so that you can focus your energy and time on areas you are passionate about. It is imperative to ring-fence these assets and allocate them to various financial instruments under various need buckets. These needs can be classified into a safety portfolio to ensure financial stability; lifestyle fund/sinking portfolio which ensures lifestyle expense sustenance; growth portfolio that provides capital appreciation; and a philanthropy fund. Many entrepreneurs also keep aside an amount with the objective of starting new business ventures. Alongside this, like a lot of entrepreneurs who have cashed out from their ventures, supporting other start-ups with capital and mentoring should most definitely be on the agenda. So, what should you do with a billion dollars? Well, above all, enjoy it!

Turn a serial entrepreneur, go for Impact investments: Arpita Vinay

Turn a serial entrepreneur, go for Impact investments: Arpita Vinay 2 / 3 Arpita Vinay, Executive director & head (family office), Centrum Wealth Management

Given the amount of liquidity, you could look at setting up your own organised Single Family Office, run by professional managers whose mandate will be to manage the family’s fortune across financial investments, real estate, taxes, etc, and generate a superior risk-adjusted return. You could also consider turning into a serial entrepreneur and channel anywhere between 20 and 25 per cent of your newfound wealth towards promoting these ventures. Since he has the required skill and business acumen, it would be worthwhile to help identify and back a lot of new start-ups, provide them with not just capital but also mentorship and guidance, which will be most sought after. Impact investments, which are that aim to generate social or environmental benefits in addition to financial gain, is something that would be of interest to a young billionaire like you.

These investments, when done strategically, have the potential to grow at 20-24 per cent annually till 2025. When it comes to the allocation for personal financial portfolio, you should look at deploying appropriate amounts across a diverse asset mix of funds, stocks, bonds, real estate, etc. The actual allocation varies from one individual to another and should always be driven by age, risk appetite and goals of that specific individual. One could choose between static, tactical and dynamic asset allocation models. A well-allocated portfolio should provide steady returns over time, irrespective of market volatility.

Allocate assets based on your willingness to take risks: Abhijit Bhave

Allocate assets based on your willingness to take risks: Abhijit Bhave 3 / 3 Abhijit Bhave, CEO, Karvy Private Wealth

At a very young age of 36 years, with the entrepreneurial bug still in you, you can turn the corpus of $1 billion (Rs 66 billion) into something much more in terms of contribution to the Indian start-up ecosystem. You can also use this sum to generate additional personal wealth while protecting the core corpus. The first step that should be taken when individuals gain such a large corpus of all-cash acquisition deals is to form a single family office. A single family office will ensure the following: protection of the core corpus; drafting of an investment mandate to streamline investment decisions; establishment of a professional management structure for the wealth; undertake philanthropic activities; and manage operating businesses, if any. The main concern that needs to be addressed vis-a-vis large wealth is the inter-generational transfer of assets. This needs to be chalked out and executed efficiently for optimum tax incidence. It is usually achieved by setting up a trust structure for legal ring-fencing of the wealth and executing the mandate effectively. Once the platform of execution is dealt with, you can look forward to efficient investment management via asset allocation for the generated wealth in order to generate the maximum possible risk-adjusted returns. Entrepreneurs who cash out at a young age usually look to start new ventures and mentor or take over an existing operating business in their line of expertise. This ensures a steady flow of additional income, leaving the core corpus untouched many times. The allocation of assets should be done based on your ability and willingness to take risks. This will help decide what proportion of should be made in different asset classes like equity, debt, real estate, private equity and venture capital based on the risk profile and requirements of funds. The preservation of the core investment corpus is key to the allocation of the investment portfolio, which can then allow for tactical allocation towards assets that can generate the next billion dollars. These can be either new ventures or investments in existing operating companies.

Compiled by: Sanjay Kumar Singh

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First Published: Fri, May 18 2018. 06:30 IST