Cash-rich individuals and companies seeking high returns are flocking to what has become the hottest business in town: portfolio management services.
Promoted by home-grown hedge funds, the assets under management of portfolio management services have catapulted four-fold in the last one year, to around Rs 2,000 crore (Rs 20 billion).
Earlier, high net worth individuals and companies parked their funds with either mutual funds or trustworthy brokers for deployment in the market. The latter guaranteed a minimum return on their investment.
But the trend is being institutionalised with a range of sops. Hedge funds are now offering profit-sharing agreements rather than the plain vanilla guaranteed, higher-than-market returns. And the star cast includes big industry players -- Enam Asset Management, PruICICI Asset Management, J M Morgan Stanley Retail -- to name a few.
One of the largest players in the portfolio management services segment is PruICICI Asset Management. With a corpus of over Rs 500 crore (Rs 5 billion), its portfolio management services offer returns in the region of 100 per cent per annum, according to PruICICI Managing Director Shailendra Bhandari.
PruICICI Deputy Managing Director Pankaj Razdan said their assets had grown at a compound annual rate of 40-50 per cent. "They've shot up in the last seven months of the equity boom," Razdan said.
"There has been a heady growth in the current year," added Jiten Doshi, director, Enam Asset Management Company. Motilal Oswal Securities Managing Director Ramdeo Agarawal expects the corpus under portfolio management services to grow four-fold within a year, to Rs 100 crore (Rs 1 billion).
So gung-ho are the players that they are now targeting medium net worth individuals as well. This category includes investors with Rs 20-50 lakh (Rs 2-5 million) worth of investible funds, compared with high net worth individuals, who have more than Rs 50 lakh in investible funds.
Sharad Shukla, head, investment advisory and portfolio management services, IL&FS Investsmart, said: "We are looking at seizing a sizeable share of the portfolio management services market meant for medium net worth customers. Since January this year, we have added more than 125 clients, and business has grown four-fold."
Why is the portfolio management services business booming?
Market experts said individual investors were increasingly finding it difficult to track the various segments of the equity, debt and derivatives markets, even as the desire for higher returns had increased manifold.
Hence the need for professional services.
Just look at how different portfolio management services are from the booming market in wealth management services. The latter aims at delivering returns in line with the risks that the investor is comfortable with.
But portfolio management services, like hedge funds, focus purely on delivering the highest returns possible.
Moreover, portfolio management services allow clients to invest a part of the required funds, while chipping in with the rest or borrowing from the market.
And going by the need of the hour, portfolio management service providers are using innovative measures, spanning the gamut of instruments available legally, to boost returns.
Hedge funds are known to build aggressive market positions, leveraging on their capital to borrow from banks. Thus, they get to invest money that is way beyond their own capital and unit-holder fund.
The returns to unit holders are much higher since the entire profit on the bigger corpus is available for distribution, less the dues on borrowings.
Like most hedge funds, portfolio management service managers, too, work for the highest returns possible in specific market conditions by playing around with asset classes.
This is especially interesting with the new Securities and Exchange Board of India's guidelines that permit portfolio management services to share profits with clients.
Earlier, portfolio management service players were only allowed to charge management fees in the range of 2-3 per cent.
It was almost like a fixed-income product, albeit promising returns higher than on normal market investment.
Most portfolio management service providers said they were not resorting to borrowing in the market, like pure hedge funds.
They said they were using legitimate instruments and even derivatives, but only as "a form of hedging and portfolio rebalancing."
While certain providers like Enam Financial invest only in equity, others like PruICICI invest in a wide range of instruments, including debt.
So with the way the market is performing, if you have the money, portfolio management services is a new way of life today.
