The Wealth Wallahs

by Shreyasi Singh

  The next morning, they had a day-long meeting at one of the city’s most legendary firms — the blue-chip private equity major, General Atlantic — in the company’s Park Avenue Plaza headquarters in New York’s mid-town area. The agenda was simple: To get a seal of approval from the General Atlantic (GA) team to invest in IIFL Wealth.

  The day began with Bhagat having breakfast with Bill Ford, the private equity fund’s CEO. This was followed by a several hours-long discussion in the office’s boardroom where the IIFL Wealth founding team sat across the table from several General Atlantic managing directors, including Sandeep Naik, the managing director and head of the fund’s India and Asia Pacific business.

  Also in attendance were consulting advisors to GA, such as Pierre de Weck, former member of Deutsche Bank Group Executive Committee, who had also served as the global head of the bank’s private wealth management business.

  Since its inception in 1980, GA has made investments in more than 200 companies across industries and continents. The fund, which invests up to $2 billion ( 13,403 crore) worldwide every year, has invested more than $2 billion in India across fifteen companies since it first set up shop here in the early 2000s. Its investments in companies like Genpact, Patni Computer Systems and Hexaware had returned close to $1.8 billion ( 12,062 crore) in exits, an impressive run.

  Intent on keeping up the momentum in India, it wanted to make the country a key focus of its global agenda. It hoped to use up a fourth of its annual $2-billion investment corpus here in companies in financial services, retail, healthcare and mobile internet.

  IIFL Wealth seemed to be a good bet for GA: A young leadership team that had proved its business model in a fast-expanding market segment. Against the backdrop of an emerging India, the unprecedented amounts of private wealth being created would need to be managed.

  A little over a month after the meeting in New York, on 24 October 2015, news of the investment went public.

  General Atlantic would invest 1,060 crore in IIFL Wealth for 21.61 per cent of the company. General Atlantic would use part of this investment, or about 160 crore ($23.8 million), to buy 20 per cent of shares of the eighty-nine employees who had equity shares and stock options in IIFL Wealth. The transaction valued IIFL Wealth at 4,900 crore ($755 million), over three times the number they had come up with at that poker party long ago.

  Setting the deck

  Interestingly, the origins of this deal can also be traced back to an evening of cards. This time it was over teen patti or the game of flush, traditionally played during the Diwali season.

  Karan37 has an annual Diwali party where the usually hundred-strong guest list is a combination of colleagues, friends and clients, including several from top private equity firms and other financial services firms.

  Shantanu Rastogi, a senior GA principal from the Mumbai office has been a regular over the last couple of years. During a conversation at one of these parties, Rastogi had indicated to the IIFL Wealth founders that if they ever considered bringing on an investor, they should give General Atlantic a buzz.

  In August 2015, IIFL Wealth finally got around to making that call to GA.

  Karan asked Prashasta Seth, CEO of IIFL Wealth’s Asset Management Company (AMC), to do the honours, because he and GA’s Rastogi had been friends for several years.

  That 25 August 2015 call set in motion the events that followed — six weeks of frantic back and forth between the GA and IIFL Wealth teams, resulting in the official announcement.

  Industry observers say that private equity deals often take nearly six months of negotiations to close. If indeed, the transaction crystallised from the first conversation to the announcement in less than two months — a striking exception — it was a testament to the eagerness of both parties to seal the deal.

  Sandeep Naik, MD and head of GA’s India and APAC business, said they owed the speed to the fact that they quickly established two key elements of the investment thesis — market size and market structure.

  With India’s economic growth and wealth creation expected to continue, wealth management had emerged as a very exciting segment with headroom for massive growth. Within the industry in India, only two companies — IIFL Wealth and Kotak Wealth Management — had built a portfolio size of more than $10 billion ( 67,015 crore) and clearly dominated the industry.

  Naik’s firm was excited at having an opportunity to participate in the growth of one of the two through this deal.

  There was another reason that helped. Since it was founded in 1980 as a private investment firm to invest the funds of The Atlantic Philanthropies — established by Charles Feeney, an entrepreneur and philanthropist — its capital is more long-term and patient because it comes from a group of wealthy families and well-established endowments, foundations and strategic institutions. This added to General Atlantic’s comfort level with the IIFL Wealth deal, believes Naik.

  ‘Since our money is also ultra-high net worth family money, we understood their business very intuitively because it’s exactly what we are doing — we manage generational wealth as well,’ he says.

  Naik had also been an IIFL Wealth client for nearly five years, having met Karan when IIFL Wealth first pitched to him. His first-hand experience added to the speed and clarity in decision-making.

  Unlike with some deals, where an intuitive understanding of the industry, or the experience of direct users of the service or product is lacking, GA was confident of its instincts in the wealth business. It seems their instincts about the people they were backing would also pay off.

  Chapter 14

  Soliloquies

  Karan Bhagat

  In early 2003, Karan reckons in terms of annual salary he was in the bottom 5 percentile of his 2001 Indian Institute of Management (IIM) Bangalore graduating batch. Six months prior to that, thanks to an enviable consulting role he had bagged in Cluster Consulting — a niche telecom advisory firm based in Barcelona — he was leading the pack with a handsome Euro salary in an exciting European city.

  Unfortunately, the tailspin the global economy had gone through in the aftermath of the terror attack on New York’s World Trade Center on 9 September, 2001, had led to Cluster Consulting withdrawing its placement offer. In October 2001, by the time Karan received the Spanish work visa he had applied for, he was jobless.

  A fresh job search didn’t go well either. By then, companies had already taken on board the management graduates they needed. In keeping with a pessimistic global economic outlook, most MNCs were in wait-and-watch mode. Hiring was frozen across several industries and a good job was hard to come by even for a bright IIM graduate.

  He needed to earn his bread. Asking his parents for money would be much too embarrassing — especially after a top management degree. Karan began teaching Maths and English at a management test preparation centre in Kolkata, his hometown. He kept the job hunt on the boil.

  In a lukewarm economy, the two offers he finally managed to get was a sales role with Kotak Securities and credit operations for ICICI Bank in Ahmedabad. These options were a sharp downgrade from his lofty ambitions of being a consultant — in both the salary on offer and the role in question.

  ‘I never wanted to do sales and I was pretty sure I didn’t want to go to Ahmedabad. It was quite a fall in style, Barcelona to Ahmedabad,’ he laughs.

  Although circumspect about selling investment products to the wealthy, Karan soon decided the Kotak role, despite its sales-heavy orientation, was the lesser of the two evils.

  Kotak gave him two location preferences: Kolkata and Delhi. A marwari from a business family in Kolkata, Bhagat decided working in his hometown would entail pitching to extended family and friends — a recipe for disaster. He chose to move instead to Delhi in November 2001, which proved to be a boon, he says.

  But, the early days weren’t easy. Kotak Securities had a very small office in Delhi at the time. The young sales managers had to fend for themselves.

  The sales role didn’t come easi
ly to him either. In the first few cold calls made to corporate lawyers, which he remembers lasting less than twenty seconds each, he realised he wasn’t cut out for it. Kotak allowed him to hire two management trainees to do the calls and Karan set about mining and creating a database of potential clients.

  The database was built on a simple filter: Big houses. With his team, he scoured through upmarket south Delhi colonies — Panchsheel Park, Sainik Farms, Friends Colony, Maharani Bagh — to populate this list.

  He never made a cold call himself again but would sit in the car while his associates did. The effort began to pay off. Their largest client relationships in 2002-03 came by doing this. Even today, he rattles off house numbers and addresses in Maharani Bagh, Saket and Sainik Farms — all wealthy south Delhi neighbourhoods.

  Karan says people who agreed to meet them either thought they were from the camera company Kodak or that Kotak Securities was a company that provided guards and darwaans for homes and offices.

  Most of our meetings happened because people wanted to change their security guards, Karan laughs. He didn’t know it then but he would face a similar situation with people confusing IIFL Wealth with IL&FS, the leading infrastructure development and finance company.

  Fortunately, the Delhi office did very well in the number of clients, the volume of transactions and satisfied clients, mainly on the back of a good run at the capital markets from 2003-2005. Kotak Mahindra got a banking licence in 2003, which also helped build trust in clients and spurred the Delhi business on.

  He hadn’t quite anticipated it earlier but the business of selling financial products suited his entrepreneurial nature perfectly. It’s the only segment of financial services where, within three or four years of starting out, you get to manage your own profit and loss account, he says.

  Neither as a management consultant or investment analyst nor as a corporate banker can you go to the source of the deal, acquire clients and decide your own pace of growth so early in your career. In most segments, it would take nearly ten to fifteen years to have your own book, Karan adds.

  Kotak also turned out to be an extremely entrepreneurial set-up; a hunger to grow encouraged risk-taking and rewarded performance. By 2005, Karan was doing well within Kotak Securities. He was transferred to the Mumbai office in 2005. He began working with Amit Shah on the McKinsey & Company project that was set up after Kotak got the banking license to migrate the wealth management business from the broking platform to the bank.

  Karan remembers being a little apprehensive about the move because clients are a relationship manager’s only asset. To have to put together a new portfolio of clients and leave the one he had diligently amassed didn’t seem, at first, like a great idea. In fact, he wanted to move back to Delhi after the first few months in Mumbai, to leave Kotak and set up an independent financial advisory business. A few of his existing Delhi clients had even agreed to fund his start-up. His boss talked him out of the idea even though he had resigned.

  In retrospect, staying back turned out to be a great decision since his exposure to financial services had been limited to Delhi then. As the mecca of financial services, Mumbai offered the scale and opportunities that a branch office couldn’t provide. It was the real deal. The quantum of wealth and the sophistication of the business in Mumbai in the mid-2000s was vastly different from the landscape in Delhi.

  ‘If I had started out on my own then, I might have made a little more money but the scale of the business I am looking after and the experience I now have would have been very, very different,’ he says.

  By 2004, the private client group business of Kotak Securities (JV between Goldman Sachs and Kotak Mahindra Bank) was merged with Kotak Mahindra Bank’s wealth management vertical. The integrated team began operations in early 2005. It was also the time that Karan and Yatin Shah began to work together — a relationship that would eventually lead to the founding of IIFL Wealth in January 2008.

  Yatin Shah

  Yatin had a somewhat less accidental entry into the world of private banking. A Mumbai boy whose father and maternal uncle ran a small furnishing textiles business, he picked up a strong, basic accounting sense while in school, often helping his father at the warehouse, visiting their trade fair stalls and witnessing the daily book-keeping the business required.

  In 1997-98, during his early years of college, he had also worked in the family business for about nine months. It’s around this time he realised that not only did he love sales; he had a real knack for selling.

  He enjoyed taking furnishing samples to retail outlets across India, staying in small lodges and hotels, to sell their designs. What he didn’t enjoy was retracing those trips a few months later to collect money from the outlets that were tardy in settling accounts. He decided to look beyond the family business.

  The love for sales and the thrill of winning new customers, which he had experienced in his short tenure, was well entrenched though. It would be these skills he would eventually build his career around.

  His passion for the stock markets began early, when he was in his early 20s. The first portfolio he managed — and lost money on — was his father’s. ‘The capital I lost was small but it really helped me learn,’ Shah says.

  It was the turn of the century. He had enthusiastically invested in tech stocks which crashing down in the 2001 dotcom bust. About the time, he had also started working in equities research at Khandwala Securities, a Mumbai-based institutional equities and investment banking firm. He had recommended these stocks to his clients as well, and the losses they suffered on their portfolio threw Yatin’s career out of gear.

  He decided he should get a management degree — to understand how companies are run and become better at analysing their performance. He went to the UK for a management degree from Cass Business School, although he says, that, in hindsight, the experiences he got growing up in a business family far outrivalled the lessons learnt by paying for an MBA.

  An avid Bloomberg user from his Khandwala days, in London, Shah attended several conferences and events in the Bloomberg office, using his student login to participate. It was a peek into the world of private banking.

  He soon realised his passion for equities, combined with his natural affinity for sales, was a perfect combination for private banking.

  In 2002, with his management course complete, he came back to India to apply for private banking jobs in Citibank and Kotak. As Kotak was a broker turning into a bank, it was ambitious and eager to grow. Yatin fit in perfectly.

  Yatin’s rise up the Kotak hierarchy in Mumbai mirrored Karan’s journey in Delhi — both acquired clients at a pace that surprised their colleagues and seniors.

  Luckily for him, his passionate pitch for equities was complemented by the strong tailwind of the capital markets during 2002-2008. By early 2008, when he left to found IIFL Wealth, Yatin managed 150-plus clients and 3,000 crores in total assets.

  Yatin had outstripped the ambitious targets he had set for himself in 2002: To earn 1 lakh ($1,490) a month even though he didn’t know what he could possibly spend that much on.

  Kotak, keen to hold on to talented employees, didn’t constrain itself to reward performers like Karan and Yatin. In fact, in 2006, Business India, a leading monthly magazine, listed both as professionals with salaries and bonuses of over 1 crore ($149,000) in India, along with senior colleagues from the bank. These included Dipak Gupta, executive director of Kotak Mahindra Bank then, and it’s joint managing director today, and Jaideep Hansraj, the present head of Kotak’s wealth management and priority banking.

  The list surprised Yatin’s dad who couldn’t believe people could make so much money in jobs without the hassles of running a business or managing a shop.

  ‘To be honest,’ Yatin tells me with a laugh, ‘Even today my father doesn’t quite understand why people give us money. Our business model doesn’t make sense to him. Because he never had that kind of wealth, he can’t understand why people are willing to hand over h
undreds of crores to us,’ he chuckles.

  Amit Shah

  Amit has always been somewhat of a rebel in his family. He belongs to a business family that has varied interests in coal and transport in Ahmedabad. Unusual for a Gujarati business family, his father, and five uncles and their children had all studied to be doctors and engineers before working either in the family business, or setting up enterprises of their own.

  Consequently, in Class XI, when Amit decided to opt for the commerce stream, his family thought he was being an “idiot”.

  After completing his post-graduation in 1998, he didn’t curry much favour with the family either when he chose to work for IDBI Bank’s fledgling operations in Vadodara, in the investment banking team, ignoring the pressure to be in some sort of a business enterprise.

  The 20,000 ($298)-a-month salary seemed like a huge fortune but Shah says he was bored of the job within two years. In February 2000, he moved back to Ahmedabad with a job in the asset management division of ICICI Prudential. This was the peak of the tech bubble and Shah was tasked with selling ICICI Prudential’s technology fund to investors — a business that would soon grind to a halt with the US dotcom bust rearing its ugly head in mid-2000. A move became imminent.

  Fortunately for Amit, Citibank was setting up its wealth management business in India, and was actively recruiting investment counsellors, essentially advisors, for HNI clients. Citibank was the bank to work for in those years: It was glamorous and well paid.

  Amit remembers his salary more than doubled to 7 lakh ($ 10,430) per annum. ‘It was an insane amount at that time in a city like Ahmedabad, and we didn’t know how to spend it,’ he recalls. Although he did well at the Ahmedabad office, getting “jaw-dropping” bonuses of 40,000 ($596), his growing ambition was limited by the size of the market in his hometown. He was desperate to move to Mumbai to get access to a larger market, disappointing his family yet again by choosing to do the unthinkable: Leave Ahmedabad.