Rich Investors Vs 'Normal' Investors: The 3 Main Differences Explained | Waterfield's Soumya Rajan

Summary

The script discusses how wealthy investors, including founders, second-generation wealth holders, and women, approach wealth preservation and growth differently. Founders are risk-takers in business but prefer conservative wealth management. The second generation balances wealth preservation with new business ventures, while women are goal-oriented and seek clear reasons for investments. Rich investors can better handle market volatility due to long-term investment horizons, often leading to higher equity and private market risks compared to retail investors. Private markets, including startups and unlisted companies, offer high risk with potentially high returns, emphasizing the importance of selecting the right fund manager for success.

Takeaways

• 💼 Rich investors have different perspectives on wealth depending on whether they are founders, next-generation inheritors, or women, each with distinct goals and risk tolerances.
• 🚀 Founders are typically risk-takers in business but prefer a more conservative approach to preserving their wealth.
• 🏛 Second-generation investors are accustomed to wealth and may take more risks with family assets to build new businesses.
• 👩 Female investors are goal-oriented and seek a clear understanding of why they are investing in certain products.
• 🌐 Wealthy investors generally have a higher tolerance for volatility and a long-term investment horizon compared to retail investors.
• 💹 Rich investors may consider different asset classes, such as more equity or private market investments, due to their long-term focus and lower liquidity needs.
• 📈 Private markets, including startups and unlisted companies, are a high-risk asset class with potential for high returns but also the possibility of loss.
• 🕒 The time horizon for private market investments is typically 7 to 10 years, with exits often starting around year seven.
• 📊 Returns from private market investments can vary widely, from very high returns of 25-30% to funds that return no money at all.
• 🔍 Choosing the right fund manager with a strong track record is crucial for successful private market investments.
• 🌍 Wealthy investors also look to diversify globally, driven by business interests or the next generation's international education and career plans.
• 💼 Domestic Indian investors are becoming more discerning, preferring to invest in funds that have proven to return money before committing to new ones.

Q & A

How do wealthy investors differ from retail investors in terms of their approach to wealth preservation and investment?

Wealthy investors, especially founders, tend to be more conservative in wealth preservation compared to their risk-taking approach in business. They can stomach more volatility and have a long-term investment horizon, which is different from retail investors who are more conscious of liquidity.

What are the typical investment behaviors of second-generation wealthy investors?

Second-generation investors are accustomed to wealth and focus on both preservation and building new businesses, which may involve taking more risks with their family assets compared to founders.

How do female investors differ from their male counterparts in terms of investment strategies?

Female investors, particularly the wealthy ones, are very goal-oriented and conscious about understanding why they are investing in a certain product, indicating a need for clear rationale behind their investment choices.

What is the general time horizon for investments in private markets and what kind of returns can be expected?

The time horizon for private market investments is typically 7 to 10 years, and returns can vary dramatically, with some funds providing returns upwards of 25-30%, while others may not return any money at all.

Why are private market investments considered risky and how do they differ from public market investments?

Private market investments are risky because they often involve investing in startups or unlisted companies without revenue, taking a bet on the founder, team, and business model. Unlike public markets, private markets lack liquidity and market pricing, requiring a longer investment lead time.

What factors contribute to the varying returns of private equity funds in India?

Returns can be influenced by the fund manager's due diligence process, the underlying companies' performance, and the investment theses. Early private equity in India, particularly in real estate funds, did not yield good returns, but later funds, especially those with foreign investors, saw better returns.

How have domestic investors in India become more discerning in their approach to private market investments?

Domestic investors have become smarter, insisting on seeing returns from previous funds before investing in new ones. This shift has occurred over the last 2 years as early investors became more conscious of the need to receive returns before committing further capital.

In what ways do wealthy investors differ in their approach to global market investments compared to local investments?

Wealthy investors look to diversify their portfolios outside of India, driven by business interests overseas, the next generation's international exposure, and the desire for better service from foreign banks and institutions.

What is the significance of diversification in global markets for wealthy investors and why is it important?

Diversification in global markets allows wealthy investors to access newer areas and trends in technology and business that may not be available in public markets, ensuring they don't miss out on areas of growth in the economy.

How do wealthy investors view the trade-off between the liquidity risk of private markets and the attractive returns of public markets?

While public markets may offer attractive returns, wealthy investors recognize the importance of private markets for investing in innovative spaces and businesses not accessible in public markets, thus valuing the diversification that private markets provide.

What regulatory limitations do Indian investors face when considering overseas investments, and how do they navigate these?

Indian investors are subject to the Liberalized Remittance Scheme and SEBI caps on rupee-denominated investments, which restrict the amount they can invest overseas. They navigate these limitations through FEDO funds and hope for policy changes that could allow greater participation in overseas markets.