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India's HNI Club Shrinks 32%

15 October, 2009
India’s high net worth individual (HNI) population shrank by 31.6% to 84,000 in 2008 mainly due to a drop in the pace of economic growth and erosion in market capitalisation, said an Asia-Pacific Wealth Report released by Merrill Lynch Wealth Management and Capgemini.
This is the second largest decline in the world. In 2007, India had posted 22.7% growth, the fastest in that year. The number of high net-worth individuals in Asia Pacific slumped 14% in 2008 and they lost over a fifth of their wealth, leading to only cautious moves from cash back into stocks this year, the report said. By the end of last year, India only made up 4.2% of the $7.4 trillion of wealth held up this group, defined as those with $1 million or more in investible assets, a Reuters report says.  
This may not be good tidings for the domestic private equity industry which is banking on the club of millionaires for raising capital as international markets continue to be challenging. There are a host of PE funds like ICICI Ventures, Aditya Birla Capital, Reliance Equity Advisors, which are looking at domestic investors to raise capital. HNIs are emerging as a major component in the domestic LP (limited partner) base. Now, if this class of investors continue to be cautious and move to safe assets, it could have a bearing on PE fund-raising activity from domestic investors.
The richie-rich club is also being tapped by foreign wealth management firms who are offering co-investment opportunities in their global private equity, real estate and hedge funds, or even structured products, says a report in the Business Standard. Co-investment is a strategy under which the private banks invest their own capital along-side their clients’ investment. Though a popular offering internationally, some leading private banks have just started offering this service in India to high net-worth individuals. For example, Macquarie, Morgan Stanley and Citi Private Bank, the report adds.
It remains to be seen if this trend catches on with the shrinking of the treasury chests of the rich.  
Reuters adds: The financial crisis spurred a flight to safe assets, with cash holdings higher than in other regions at 29% and a surge in demand for gold, especially in China and Thailand, Merrill Lynch and Capgemini said in their Asia-Pacific Wealth Report 2009.
“We expect them to remain cautious,” said Eng Huat Kong, head of South Asia at Merrill Lynch wealth management.
“Allocation to cash has certainly reduced and they have begun to get back into the equity market,” he said at a briefing.
The annual report said despite last year’s setback, the region will be one of the fastest drivers of growth among such millionaires, predicting compound annual growth of 8.8% in the wealth of this group until 2018.
The report expected Asian economic growth to be more than double that of world growth next year at 3.5 percent. Many policymakers from South Korea to the United States say growth-supporting policies need to be maintained to avoid the risk of a double-dip recession.
“If there is another crisis, the impact will not be as dramatic as last year,” Kong said.
The report said, the region’s wealthy are concentrated in Japan and China, which together made up 72 percent of the total, up slightly from the previous year as they saw milder losses than those in many other countries.
The high net worth populations in India and Hong Kong saw the biggest pullback in 2008, on sharp falls in market capitalization, slumping housing prices and a drop in global demand for exports.
Overall exposure among the regions’ wealthy to equities shrank to 23 percent at the end of last year and real estate holdings edged up to 22 percent.
Asia’s wealthy are more often first-generation entrepreneurs willing to take on more risk and actively trade for high returns, compared to the older inherited wealth in Europe and North America, private bankers say, but the report said it expected cautious asset allocation in the short term and a more balanced approach in the long run.
The wealth management industry is in the midst of unprecedented change as volatile financial markets and the erosion of bank secrecy challenges traditional business models. “Clients are asking more questions, making sure they are dealing with the right institution and banker,” said Kong.
“International banks will still have the key market share.”
Private bankers told the Reuters Global Wealth Management Summit last week they were selectively hiring again and seeing new inflows, after a troubled year when worried clients have been pulling funds or trading less and banks have been laying off thousands of staff.
The war for talent is still seen by managers as one of the biggest challenges in the industry, with the latest defection coming from RBS Coutts staff in Singapore joining boutique Swiss private bank BSI, including RBS Coutts ex-head of South Asia Raj Sriram.


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India's HNI Club Shrinks 32%

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