“Alternative Investments” appears to have caught the attention of High Net Worth Individuals (HNIs) in India as they seek to move beyond mutual funds and stocks and diversify their portfolio across asset classes. Even the highest earning millennials are shunning traditional investment strategies in favor of digital alternatives.
Alternative investments include asset classes or financial investments that are not commonly available and fall outside of traditional investment categories. These include venture capital debt, private equity, hedge funds, structured products such as gold sovereign bonds/gold ETFs, market-linked debentures (MLDs), real estate investment trusts ( REIT) or real estate related debentures, infrastructure investment trusts (InvIT), as well as pre-IPO (initial public offering) securities and offshore investments. More recently, cryptocurrency and NFTs have also come into the fold.
While HNIs have comfortable access to financial advisors and portfolio managers when it comes to creating sophisticated portfolios, others continue to evaluate the tools and ways to invest in these new asset classes as well. than their conventional options.
Mumbai-based wealth management startup Dezerv wants to tap into this niche section of investors. Founded in 2021 by former IIFL Wealth Senior Managing Partners Sandeep Jethwani, Vaibhav Porwal, and Contractor SahilDezerv provides advisory and investment servicetargeting in particular senior professionals, across multiple assets and instruments, including alternatives and new asset classes offered online.
The idea is to unlock access to new asset classes, currently only available to HNI individuals, and help investors – with a minimum ticket size of Rs 50,000 – create sophisticated portfolios with a balanced mix of conventional and new-age investments.
Wealth Management for Growth
Dezerv aims to break the restrictive idea of wealth management which remains focused on keeping the value of money (in line with inflation and taxes) rather than translating it into growing capital. Hence the influx of alternatives into investment portfolios and the consequent need for dedicated due diligence and review advice, which Dezerv claims to offer.
“Your money should not only give you inflation-linked returns, but also grow beyond that so you’re actually generating a second income. This requires creating unique portfolios around growth assets that don’t fit into the majority of our portfolios. There are ups and downs in these instruments, but they help grow capital over the long term,” Sandeep said. Your story.
The alternatives come with a set of challenges due to their complex nature, high risks, limited regulations and relative lack of liquidity. Therefore, this particular world of investing would require a high degree of due diligence for every opportunity, meticulous processes and strong post-investment monitoring. This is an opportunity for technology-enabled platforms to help deepen these financial instruments into investors’ portfolios through technology- and human-centric due diligence and reviews, as demand grows.
“A lazy approach doesn’t work with these growth assets. You can’t just put your money in and forget about it. We do a lot of research before making recommendations and creating the right mix,” adds the co-founder.
How it works?
Once a listing request is accepted on the platform, the client undergoes a quick online survey of their investment needs, preferences, track record, history, risk appetite (the degree of decline it can handle), etc.
Based on the data, a team of experts performs the risk assessment and creates a multi-asset portfolio using algorithmic models. “We use modern science and the Black-Litterman model to create portfolios. Quantitative experts run algorithm models to create these wallets, which are then verified by our domain experts before giving them to users,” says Sandeep.
Users can rate recommendations and connect with the team for further discussion. They can change the portfolio at their discretion after the discussion. Once the asset mix is finalized, investments are made through the Dezerv platform and a member partner is dedicated to executing, reporting and rebalancing recommendations.
The composition of assets varies from client to client, depending on their risk exposure. These include a mix of conventional and unconventional assets, including stocks, government bonds, large-cap index funds, fixed-income credit funds, global instruments, pre-IPO sales, gold funds and other alternative investments. The startup is waiting for regulations in the Crypto and NFT space to evolve, before offering the same to its investors.
The minimum investment ticket size was kept at 50,000 rupees while the founders claim that the average amount of money invested through the platform is in the range of Rs 5-7 lakh and goes up to crores.
Its target audience typically includes active professionals in the 30-45 age bracket, who have some investment experience and have tried their hand at it for themselves.
“We don’t just have typical HNIs on our platform. We get inquiries from employees of startups who have made money through ESOPs. After working for 7-8 years, they get a lump sum of Rs 50-70 lakh and want someone to manage this money for them,” says the co-founder.
The platform is currently ‘invite only’ because he wants to provide quality service with a human interface. In addition to the founders’ personal network and word-of-mouth, Dezerv also receives sign-up requests via social media, he adds.
Requests are assessed and if an “invitation” is sent to the customer, they can access the services. He’s aproximatly 65,000 registrations to date, and now claims to add nearly 20,000 registrations every month, starting in May.
Commercial traction and competition
Dezerv has a team of 24 people of which 12 are investment experts who design the portfolios while the member-partners come in post-investment. In terms of volumes, the platform claims to have over Rs 600 crore of assets traded on its platform and is expected to touch Rs 1,000 crore in the coming months.
The startup does not charge users any fees but earns money from the makers of the financial products they recommend. “We let our users know how much money we are going to earn from their wallet. It’s not something common in the industry,” says Sandeep.
Within six months of launch, Dezerv raised a $7 million seed round. This, according to the founders, provided him with a 2-3 year runaway. It has well-known investors like Elevation Capital, Matrix Partners India, Whiteboard Capital, Blume Founders Fund, and several angels, on its tray.
Dezerv’s competition comes from the investment arm of private sector banks in addition to a host of other independent financial advisors in the country. Tech platforms such as Groww, Zerodha, Upstox, Scripbox, and Kuvera also operate in space, but follow a more Do-It-Yourself (DIY) approach without too much human interface.
The alternative investment market has grown rapidly in recent years and, according to the latest data from the Securities and Exchange Board of India (SEBI), assets of alternative investment funds (AIFs) have grown by more than 32% by one year to the next. year at Rs 5.35 lakh crore at the end of September 2021. Although most of them are linked to growth venture capital and private equity funds, it also means the rise of interest in these classes of assets and the need to make them more accessible.
The startup plans to remove the “invite only” feature as it evolves. He recently pocketed his Portfolio Management Service (PMS) License and would add the offer to its current services. A portfolio manager is required to accept a minimum of Rs 50 lakh or securities worth a minimum of Rs 50 lakh from the client.
On the issue of changing the current offering or target audience as a result of PMS services, the founders clarified that their minimum ticket size would remain at Rs 50,000 and portfolio management would be an additional option for clients.
“We believe that our current group of users who have an average investment size of Rs 5-6 lakh will gradually accumulate higher sums of money over the next 4-5 years. They will then be eligible for our PMS service. It will be a natural extension and we are creating a capacity,” says Sandeep.
The offering will also expand the startup’s audience to HNIs, creating a larger monetization pool for Dezerv.