In an interview with MintGenie, Himanshu Kohli, co-founder of Client Associates, talks about the evolution of the high net worth individual (HNI) landscape in 2024, the importance of diversification through international real estate, and the environmental, social and social implications of 2024. Talk about the increased attention. Governance (ESG) compliant investments.
What are the key trends we will see in the HNI investment environment in 2024?
One of the key trends we have observed in the HNI landscape is that balance sheets are growing, meaning assets are growing, even though customer needs are not growing as much. This means that surplus assets will also increase, resulting in a bias towards growth-oriented portfolios, and here we are referring to increased allocations to public, private and international markets.
The second trend is that planned investments continue and, in fact, increase over time. Third, the financialization of savings will continue to be transformative and investment in equities as a mainstream asset class will continue. In addition to equities, investors will also look at higher allocations to alternative asset classes. In terms of international exposure, UHNI and HNI will continue to increase their allocation to global portfolios as a Plan B option, with the aim of diversifying beyond India.
At the balance sheet level, clients in this segment may want to reconsider their asset allocation and reconsider their business assets, real estate portfolios, and financial assets. This helps make asset allocation decisions based on the balance sheet, rather than recency bias, which can lead to extremely strong markets and greed on the part of investors. We expect the unlocking of value from businesses to continue and more surplus assets to flow into financial assets.
Could you please explain in detail your family office's overseas real estate investment strategy? What are the important factors to consider when choosing overseas real estate?
Before we get into the details, we would like to provide some examples of why our clients are interested in international real estate. For example, if our client wants to get a golden visa in Dubai, they will need to invest in real estate. Many UHNIs and HNIs are considering Portugal as a Plan B option, with some schemes allowing clients to invest in property. However, there have been some changes in policy recently that you should check before considering investing in real estate. Additionally, when clients consider citizenship in another country, they also consider investing in real estate.
Indians are generally very interested in real estate investing in India, as evidenced by the fact that after business, they always think of owning a home and buying real estate before dabbling in financial assets. Therefore, overseas real estate comes naturally to Indians and will be one of the important asset classes that Indians want to build in their overseas portfolios.
What are the important factors to consider when choosing overseas real estate?
International real estate management is one of the key factors we consider when investing in this sector. Specifically, we consider trends in these markets, including supply and demand needs, revenue potential, and connectivity with India. Also, keep a close eye on whether interest rates are going down or up, and if they are trending down, this could have a positive impact on real estate in the long run.
Also consider what percentage of your international portfolio you intend to allocate to real estate. This will also determine the location and size of the property you can consider. Other factors are what the exit costs, impact costs, and tax laws will be in the area if the property is given on a rental basis or needs to be sold later.
How does your family office assess and mitigate risks associated with overseas real estate markets?
We can assess risk by looking at the law and order situation, its legal system, taxation issues, available exit options, as well as the impact costs and tax implications of exiting the property and wanting your money back. Masu. Country. In addition to the above factors, all financial and legal due diligence should be done to assess the risks and these are also ways to mitigate these risks.
How does investing in overseas real estate fit into your company's broader portfolio diversification strategy?
We have been saying that our clients should diversify beyond India as this is a broader strategy to reduce risk across the portfolio. Therefore, we recommend allocation to alternative markets, and real estate is one of the asset classes within this segment.
We strongly believe in diversification, and investing in overseas real estate allows for not only geographic diversification but also currency diversification. This is because the value of the property changes in dollar terms or in a specific country's currency.
In addition to real estate, you may also want to consider REIT and InvIT structures available overseas. These also provide exposure to real estate, but rather than being concentrated in one property, they can provide diversified exposure. Therefore, rather than owning physical real estate, customers can own units in a fund that invests in multiple regions or multiple types of real estate within each domain, such as commercial, residential, land parcels, warehouses, etc. .
Can you talk about the importance of local partnerships in overseas real estate business? How do you select and manage these partnerships?
We believe that real estate is a very local topic, so let's say we partnered with a company in Dubai. Even if we have a general understanding, we are not specialists in any particular market. Therefore, a partnership with these market experts becomes a win-win situation because they know the geography and we know the needs of our clients.
How do you select and manage these partnerships?
Their experience, track record, and comfort when meeting these people are some of the key factors that help us manage our partnerships, and this is no exception.
ESG investing has become a hot topic. What do you think about that and do you consider these factors in your investment strategy?
Awareness of the importance of a better environment is growing and demand is increasing for investments that benefit the environment and society. We focus on ESG-compliant investment opportunities. Although it has become mainstream in the US and Europe, it is still emerging in India. Despite the limited availability of ESG funds in India, interest is growing due to global trends emphasizing social responsibility and green initiatives. The Indian government's emphasis on green energy in his 2024 Budget and goal of net zero by 2070 highlights the sector's potential. While our ESG investment strategy is evolving, we recognize that further development and engagement is required in line with these global changes.
Divorce is also a sensitive topic. How do you deal with such problems?
Divorce is a very emotional issue that occurs when families are dealing with emotions. We introduce a more pragmatic principle. In such cases, we make comprehensive financial plans that cover their daily needs and create appropriate portfolios so that their wealth can serve them well in the future. We strive to optimize the family's portfolio allocation to minimize the financial burden on the family. As for the family, in this way the financial burden will be alleviated, but there will be a psychological loss, only time will tell, but financially it will be secured.
Click here to read the second part of the interview.
Padmaja Choudhury is a freelance financial content writer. With approximately six years of combined experience, she focuses on mutual funds and personal finance.
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