The Wealth Wallahs

by Shreyasi Singh

  More importantly, he spotted a USP in their pitch that he understood well. More than anybody else who had bombarded his inbox and smartphone during those two frenzied weeks, they had more clients like him — first-generation entrepreneurs who had built impressive fortunes from the dynamic opportunities a fast-growing emerging economy throws up. How had IIFL Wealth queued up a long line of India’s new millionaires as clients?

  It was the same principle as the cab network we were trying to set up at TaxiForSure. The truth is, the more cabs you have in your network, the more new networks of cabs you manage to bring in,’ says Aprameya.

  Right on the money

  If ambition and scale have a specific look, the scene from Karan Bhagat’s seventh-floor office in Mumbai’s Lower Parel area, would certainly qualify. Dozens of sixty-storey high yellow construction cranes, moving with the laboured yet steady rhythm of a monolith are at work, erecting residential towers that are pegged to stand at seventy five floors when completed in a few years.

  Bhagat is IIFL Wealth’s 39-year-old founder, and its MD and CEO. The busy vista his office looks out to is befitting of the eight-year-old company that he founded with Yatin Shah and Amit Shah.

  Aprameya might not have known much about the industry they worked in but Bhagat, Yatin Shah and Amit Shah have managed to build a thriving business by focusing on the success of people such as him.

  In under a decade, they have assets under management (AUM) of more than 86,000 crore (approximately $12 billion), working with more than 7,000 wealthy individuals and families. Growth has been at a steady clip. In the past few years, it has risen steadily up the industry rankings to be amongst the top private bankers in the country.

  Strikingly, nearly 70 per cent of the 86,000 crore of assets that IIFL Wealth manages and advises on is first-generation money. More than the core competencies they brought to the business, it was their decision to focus on first-generation money that has really paved the company’s growth path, the founders say.

  What makes their journey even more interesting is that they mirror their clients, being new wealth creators themselves. Together, the three founders own about 14 per cent of the company. After private equity major General Atlantic invested 1,060 crore ($165 million) in the wealth management firm in October 2015, it was valued at slightly over 4,900 crore ($765 million). The founders’ collective stake comes to a little more than 700 crore ($100 million).

  When IIFL Wealth started out, in early 2008, wealth management was still a niche and growing segment within financial services in India but one that had already become extremely fragmented and crowded, especially in a place such as Mumbai which they initially focused on. Existing wealth clients, already working with wealth divisions of their banks, had a range of firms to choose from if they were dissatisfied.

  Contrary to what the various lists of the richest Indians in the media would have you believe, the top 500 families in India are not the biggest clients for wealth management companies.

  Wealth managers and private bankers can boast about working with India’s top hundred or 500 richest families. It makes for good press but the reality is that much of this wealth is locked in their company’s equity, real estate or distributed across a range of businesses owned by these families. They don’t need external avenues for investing surpluses because their businesses provide them with enough opportunities for investment.

  IIFL Wealth had to depend on a new kind of customer to grow: People who were making money as they were setting up their businesses, and were doing so for the first time. Fortunately, for them, a rampant wealth effect was sprouting strong, fresh roots in India then.

  In fact, their entrepreneurial success has been largely possible because they are in sync with that most hallowed of business maxims — being in the right place at the right time.

  Fortunately for them, they weren’t the only ones.

  Chapter 2

  Midas’ New Crucible

  As a prodigious 15-year-old, Vijay Shekhar Sharma needed special permission to enroll in the Delhi College of Engineering. It is a pattern he would repeat often: Not to let age come in the way. He was rich way before he could get a drink at a bar.

  At 19, Sharma, the founder of One97 Communications Ltd, which runs the company’s flagship e-commerce marketplace Paytm, graduated from the Delhi College of Engineering (DCE). It was 1998. It was an exciting time for India. The internet was expanding its grip as a business. Sharma decided to ditch the 1,600 ($24) a month job — the highest salary on the DCE campus that year — to work on the web portal and search engine he had started with his friend Harinder Pal Singh Takhar in their dorm room.

  Barely twelve months later, Living Media India, owners of the India Today Group, acquired his start-up. Apart from a search engine and web-guided services, they had built an election tracking software. India Today bought it for half a million dollars. They used it to cover the general elections of 1999. It was the election in which the Bharatiya Janata Party-led National Democratic Alliance formed a stable government for the first time.

  Thanks to the part-cash, part-contractual agreement — the start-up moved within the studios of the television network to manage their web operations — Sharma had, at the turn of the century, an annual personal income of 36 lakh ($54,000). Every fifteen days, there would be a deposit of 1.5 lakh ($2,250) in his bank account. It was life changing for a young man. ‘In many countries, you get voting rights only at twenty one but by that age, I was earning more money than my father had earned in his lifetime,’ Sharma says.

  Growing up in Aligarh in the 1980s and 1990s, Sharma’s first sense of what money was came from the 2 lakh ($3,000) his father, a school teacher, had borrowed; that amount would prove to be enough to completely throw into disarray his family’s cash flows, and be a burden that would ominously hang over his childhood. ‘We didn’t have any extra money beyond our basic needs of food and education, literally, not one extra rupee to spend. We lived a lower-middle class life,’ he says.

  Even then, his early successes and the windfall from his first venture didn’t impress his parents who had been very disappointed when Sharma had refused jobs in big companies to opt for working on his own. In the late 1990s, “making it big” was all about a job in a big technology firm that had the potential to take you seven seas away — to the United States.

  ‘People didn’t think living in India was a mark of success. If you were here, starting a company nobody had heard of, it made you a loser. If it wasn’t Infosys, or Wipro, who were you?’ he says.

  Worse, his parents were suspicious of his good fortune, convinced that there was no way somebody as young as him could have come into such a windfall by selling an obscure, unknown company. They were worried their son was up to no good — even going as far as sending Sharma’s cousin to investigate. ‘My cousin spied on me for a few weeks, even visiting our office on weekends to make sure it really did exist, that we hadn’t fronted a façade for his weekday inspection,’ Sharma laughs at the memory.

  His net-worth is no laughing matter though. Sharma is part of a select group of entrepreneurs behind India’s most talked-about “unicorns” or technology companies that are valued at more than a billion dollars.

  At its last fundraising round in September 2015 in which Chinese e-commerce giant Alibaba Group Holding and its finance arm Ant Financial put in more than $500 million ( 3,336 crore) in the company, news reports said Paytm was valued at anything between $3.4 billion to $4 billion ( 22,689 crore to 26,694 crore). Along with Flipkart, Amazon India and Snapdeal, Paytm, which started as a mobile payment solutions company in early 2010 is locked in a high-decibel, high-visibility war for India’s e-commerce space. Sharma is reported to own about 21 per cent in the company and, at that valuation, has personal holdings worth $800 million (around 5,000 crore).

  It’s a figure that seems a lifetime and not just decades away from his childhood.

  New kids on the block

  Sharma’s introduct
ion and journey to wealth is cinematic: A rags-to-riches story, a genre made so popular and symbolic in the Hindi film industry of the 1980s. Yet, for someone like me, who has been writing about Indian entrepreneurial success stories for many years, Sharma’s trajectory from a lower-middle-class dreamer to a breakthrough business success story isn’t an aberration in India’s contemporary economic landscape.

  India has witnessed an unprecedented phase of wealth creation over the past two decades, a trend that has sharply accelerated in the past ten years. India’s wealth increased by $2.284 trillion ( 15,24,227 crore) between 2000 and 2015, making it one of the world’s fastest growing economies with a 211 per cent increase in overall wealth, according to Credit Suisse2.

  A growing number of equity dilutions, stake sales and real estate deals have led to this never-before pace of wealth being created and unlocked in India; it has also given way to the emergence of a new group of the first-generation wealthy.

  Be it cut-throat deals or generosity, it’s the new wealthy who are making waves.

  Let’s take a look at Shanghai-based Hurun’s India Philanthropy List of 2014, for example. Seventy-three per cent of the people named on the list, on the criteria that they must give away 10 crore ( 1.5 million) or more in philanthropy, were self-made.

  India’s economic progress has provided the bedrock for this growth, expanding as it has from being a $1-trillion ( 66,73,500 crore) economy in terms of its GDP in 2007 to double of that by 2015. To put it simply, it has taken India just seven years to add another trillion dollars to its GDP compared to the nearly sixty it took us to accumulate the first trillion. This has spawned new businesses and industries, giving way to market opportunities for business owners and entrepreneurs to exploit. In the past fifteen years itself, the size of the Indian economy has grown by more than four times.

  These new wealthy fall into three broad categories. First-generation entrepreneurs who either through equity dilutions or a constant expansion of their businesses have been able to amass wealth; second-generation entrepreneurs — or the mezzanine generation — where the business might have been started by the previous generation but the real scaling up happened only in the past decade or so; and an emergent cadre of rich professionals, mainly senior corporate executives in industries such as financial services, consulting, information technology and well-funded e-commerce and technology start-ups. This expansion of wealth beyond the clutch of a small group of business families and industrial houses to successful first-generation entrepreneurs as well as a strongly emergent cadre of professionals/CXOs mirrors the changes in the entrepreneurship and corporate landscape in India in the past two decades. Unlike the movers and shakers of yore, their money is also “cleaner”.

  When India opened up its economy in 1991, it led to a robust wave of post-independence entrepreneurship. Companies came up across several industries — financial services, business process outsourcing, IT services and delivery, aviation, retail, media, auto ancillaries and pharmaceuticals — to take advantage of the growing middle-class consumption as well as benefit from the cost arbitrage gap between the developed and the developing world.

  It gave rise to the first wave of the first-generation wealthy, symbolised by entrepreneurs such as N R Narayana Murthy (Infosys), Dilip Shanghvi (Sun Pharma), Shiv Nadar (HCL), Kishore Biyani (Future Group), K. Anji Reddy (Dr Reddy’s) and Sunil Bharti Mittal (Bharti). A newly-liberalised economy, and the end of the license-raj, that had until then kept business confined to a handful of families and groups, threw open a wide variety of opportunities and several first-generation entrepreneurs swooped in to make good on the possibilities.

  Over the past decade, entrepreneurship has swelled. A nascent, but fast-evolving angel network and venture capital industry is allowing an increasing number of people to found companies and become business owners. This phase has been more sharply focused around the opportunities thrown up by the mobile and internet era, and less diverse in terms of the industries where first-generation entrepreneurs have been successful. It has also created success stories and millionaires at an accelerated pace.

  More than even the first wave of the early 1990s, this recent spurt has made high-impact entrepreneurship seem more accessible for first-generation business builders, and sealed India’s reputation as a start-up nation.

  The rise of the rich professional — another key segment driving the growth of wealth creation — is significant. Till not too long ago, only owners and inheritors of businesses could have hoped to build substantial fortunes. Today, even managers of businesses and skilled professionals have a real shot at becoming rich.

  Not even ten years back, or during the early wave of entrepreneurship, right after liberalisation, did professionals have a similar opportunity to be substantial wealth-builders. Through the 1990s and even till the 2000s, it was unlikely for a company’s senior executive leadership to have ownership by way of shares.

  Things began to change only in the early 1990s. Till then, the Companies Act dictated ceilings on CEOs’ salaries. Liberalisation of the economy unleashed by Prime Minister PV Narasimha Rao’s Congress-led government and its Finance Minister Manmohan Singh initiated a big change. The ceiling on salaries and perks were shattered by reforms in the Companies Act.

  Pradip Shah, founding MD of credit rating firm CRISIL was reportedly one of the earliest to cross the seven-figure salary barrier. He wasn’t alone as pay packages went up. Yet, through the 1990s, the CEO crorepati club was still fairly exclusive. Also, CEOs still didn’t begin to own significant equity. Compensation expanded but it was still a fixed salary.

  This began to change in the early years of the twenty first century. By then, large multinationals had come into India. The dotcom boom and rapid growth of IT companies had opened up opportunities for corporate professionals to demand salaries that were exponentially higher. Often, in global multinationals such as PepsiCo, Reckitt Benckiser or Citibank, Indian CEOs were either picked from global markets, and almost always, were called in to operate in global markets as well. Their compensation went up accordingly. By 2005-06, the 1 crore ($150,000) benchmark had given way to $1 million ( 6.6 crore).

  Today, there is a growing recognition of professional talent and its role in building a company. This value for talent has led to a transfer and sharing of wealth from owners to managers, through handsome compensations and, more importantly, employee stock option schemes or ownership in companies.

  A decade ago, traditional promoters would have baulked at the idea of employees having a share in the business. Today, smart business builders, especially in new-economy businesses, understand that equity is a valuable currency for acquiring, and negotiating with, talented senior executives. The trend is likely to keep spawning a sizeable number of wealthy professionals across industries and in both subsidiaries of foreign firms and large family-run Indian businesses.

  In the more than two decades since Pradip Shah became the first crorepati CEO, the number of wealthy corporate executives has grown exponentially. In fact, no longer are these handsome compensation packages reserved for CEOs. Even senior executives across industries now earn salaries rivaling the owner of a mid-size industrial unit.

  The wealth effect

  Between 2004 and 2009, as private equity (PE) and venture capitalist (VC) firms began to acquire critical mass, PE investors injected nearly $50 billion ( 3,33,675 crore) in more than 1,400 Indian businesses—including nearly one-third of what are now India’s 500 biggest enterprises3. Some 900 of these investments happened in 2007 and 2008 alone, making India Asia’s largest PE market for both those years.

  So, even as IIFL Wealth was starting out, a new generation of the Indian wealthy was being minted. Between 2008 and 2012, there was a steady stream of stake sale transactions, mergers and acquisitions: Essentially, many entrepreneurs and promoters were able to convert their stakes in their companies into liquid cash. The heightened deal activity during that phase spurred the creation of private wealth by gi
ving many promoters and founders an opportunity to exit their businesses. That “wealth effect” was a unique moment in time.

  There was a tremendous build-up of riches. The harvest of the post-liberalisation phase of entrepreneurship was coming home. Few wealth managers were focusing their attention on this new demographic, because in the early to mid-2000s, the quantum of wealth being created was still tiny but would pick up pace by the late 2000s and accelerate sharply after 2010.

  The rise of these groups has made India the world’s most fertile breeding ground for the wealthy. Interestingly, India seems to be minting wealth across a wide spectrum, from the ultra to the moderately wealthy.

  The number of both high net worth individuals or HNIs (those with more than 6.5 crore, or $1 million in investable assets for the purpose of this book as the classification differs across financial institutions, fund managers and consulting companies) and ultra high net worth individuals or UHNIs (those with more than 25 crore, or US$ 5 million in investable assets) is rapidly climbing. According to the World Wealth Report 20154, India recorded the largest gains — in the Asia-Pacific region and globally — in the HNI population (26.3 per cent) and wealth (28.2 per cent). Simply put, the wealth effect in5 India is leading to growth, both in the number of HNIs and an increase in the total quantum they have amassed.

  By 2018, India will be home to 3.58 lakh millionaires, more than doubling its tally from 1.8 lakh in 2013. Another study6 has found that over the next four years, the number of New Wealth Builders (NWBs) — Indian households with financial assets of $100,000 to $2 million ( 66,73,500 to 13 crore) — is expected to jump ten-fold to 4.9 million.

  Consisting of self-made professionals, corporate executives and entrepreneurs, NWBs are the world’s fastest growing wealth segment, the study finds. India’s members were tenth on the list — out of thirty countries — with combined assets of $84 billion ( 5,60,574 crore) in 2014. But, India beats all other nations when it comes to growth forecasts. NWBs are expected to jump by 47.4 per cent by 2020, each with $178,000 (approximately 1.2 crore) in projected average financial assets.