A recent report released by Kotak Wealth Management estimates that by 2015-16, the net worth of India’s ultra HNHs (Ultra High Net Worth Households) is likely to grow five times to Rs 235 trillion. In fact, if you dissect the report further, it says that there would be 219000 ultra wealthy households in India by 2015-16, moving sharply upwards from the current figure of around 62000. Another interesting piece of data from the same report says that the number of Indian billionaires on the Forbes list has gone up from just three in the year 1996, to 55 in the year 2011.
Now, why are we discussing these statistics? Well, it is because this set of statistics leads us to an interesting topic – wealth. This, in turn, takes us to something even more interesting to many people today – professional wealth management.
The growing number of wealthy Indians threw open an opportunity for the so-called ‘professional wealth managers’. As is always a trend, a whole lot of intermediaries were spawned, who have jumped on to the bandwagon offering professional wealth management services to clients. The changing face of the Indian economy over the past decade or so, has spurred a demand for services like these. But, have service providers managed to stay true to their word? Have investors really gained from their services? Have these services led to any meaningful wealth creation in the truest sense of the term?
If you look at the indications floating around, you would be surprised to see that the wealth management industry and, specifically portfolio managers, have not been doing a great job. This is more evident in the statistics of assets under management with portfolio managers over the past six months. In fact, between December 2010 and May 2011, client additions in the portfolio management sphere have not been impressive in the least. The number of clients availing themselves of these services in the discretionary category has gone up by a mere three per cent, though the number of clients opting for non-discretionary portfolio management services has gone up by 24 per cent during the same period. The number of clients using only advisory services has, in fact, gone down by four per cent during the relevant period. All of this hints at the disillusionment of clients towards the results that have come their way from these services.
From the total of Rs 267433 crore that were being managed under the discretionary category, only Rs 142702 crore is still with portfolio managers. This translates into a huge 47 per cent decline in the AUM in the past seven months. The non-discretionary category has seen a smart jump of 57 per cent in AUM during the same period. However, in view of the overall quantum of funds that are being man-aged under this category, the picture is far from rosy. From Rs 6902 crore that were being managed in this segment during December 2010, the number has moved up to Rs 10819 crore. This is hardly an amount to write home about, considering the volume of opportunity that lies in this business. Assets under management on the equity side have declined by 13 per cent between December 2010 and May 2011, from Rs 19272 crore to Rs 16824 crore. Notably, the AUM on the advisory side of the business has come down by only 2 per cent, from Rs 88611 crore to Rs 86521 crore.
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