Super-Rich Holding More Debt in Portfolios Amid the COVID-19 Jitters

Family Investments

Wealth managers are typically averse to redeeming mutual funds at a loss. The portfolios of the super-rich in India have been leaning towards the debt amid the uncertainties due to the COVID-19 pandemic in the country. This is according to the multiple family offices that Mint spoke to understand the investing trends among ultra-high net worth individuals and families. The money of the super-rich is managed by specialized wealth management firms called ‘family offices’. These entities usually manage ₹1 billion and above per family and have business families or entrepreneurs as clients.

Amit Patni, Director, Campden Family Connect, a network of family offices, said that the portfolio of the average client of a family office hadn’t changed much in the past few months. “It was roughly 40% equity, 50% debt and liquid, and 10% alternatives, including gold. Family offices will typically look to rebalance only after the market reaches its previous pre-COVID-19 peak,” he said.

Wealth managers are typically averse to redeeming mutual funds at a loss. The COVID-19-driven market fall has likely resulted in unrealized losses in some of the client portfolios. Soumya Rajan of Waterfield Advisors, who manages assets of 70 families amounting to about $3.7 billion, sketched a more conservative portfolio for her clients with 26% in equity, 58% in debt, and alternatives, including gold at 13-15%.

Within the asset classes, family office professionals elaborated on a few trends.

Equity slowly being hiked: “We are allocating money to equities on a staggered basis to rebalance the asset allocation, where equity values may have dipped due to a fall in the stock markets or where clients are not fully invested in equities. The fixed-income portfolios for clients will be generating lower yields in the next 12-18 months, and this is a new normal that clients and wealth practitioners need to accept,” said Rajan.

Munish Randev, Founder & CEO, Cervin Family Office, acts as an adviser to other family offices. He also noted a drop in equity allocations. “We have gradually raised it since then and used the opportunity to realign the portfolio and pick up quality stocks at relatively better allocations in our core portfolio,” he said.

Lower-risk debt: Along with other debt investors, family offices have also pivoted out of credit risk funds into lower-risk debt categories. “There wasn’t much credit risk in our client’s portfolios. We were more invested in corporate bond funds and banking and PSU debt funds. In the current environment, even that small allocation to credit risk funds has been removed from our client portfolios as we don’t see a commensurate risk-reward for being invested in these funds,” said Rajan.

More gold: Family offices typically advised clients to raise gold allocation towards the end of 2019. Randev recommended a 7.5% allocation in late 2019 but strictly on a tactical basis. However, some clients took higher allocations depending on their risk appetite. He asked clients to reduce allocations by half in June after the rally in gold prices. Rajan also moved up gold allocation from near zero to 5-10%.

More international stocks: “International, particularly the US, have been gaining popularity among family offices,” said Patni. By and large, family offices said they use India-based mutual funds investing in foreign markets. “India now has funds tracking the S&P 500 and Nasdaq indices, and we have a very positive outlook on these allocations both from a return and risk diversification perspective,” said Rajan. In some cases, family offices also use the Liberalised Remittance Scheme (LRS) to directly buy US equities, rather than through funds.

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