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India’s Waterfield to capture domestic capital with FoF structure and develop offshore capabilities

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Waterfield Advisors, an Indian financial advisory firm for multi-family offices, is looking for business beyond the COVID-19 pandemic. It aims to launch a fund-of-funds to pool domestic capital from Indian family offices (FOs) and has mapped out an ambitious route of overseas expansion.

The company told Asian Private Banker that its fee-only model — which has been gaining traction from Indian families over the last few years — has been a growth driver, despite the projected contraction of the Indian economy in 2020 and the mounting business losses that have hit many families that Waterfield advises.

“Our flat fee-based advisory model has enabled the business to enjoy an uptick in client acquisition this year despite COVID-19,” Soumya Rajan, founder and CEO of Waterfield Advisors, told Asian Private Banker.

“We stick to this model and firmly believe that financial advisors cannot have a conflict of interest when advising their clients,” she added. “This proposition has proven to be even more persuasive in the current situation when markets have come into a tailspin.”

More recently, the turbulence in the equity market has driven conversations between wealthy families and their advisors more towards the alternative space, Rajan said, with the drop in equity values creating consolidation opportunities and M&A appeal.

“Our conversations with these families have revolved around searching for businesses that can be assimilated into the families’ core businesses and which they can pick up,” Rajan observed.

Encouraging a domestic ecosystem for FOs
What Waterfield Advisors will do to seize the opportunity in alternative funds is to launch a fund-of-funds (FoFs) for domestic capital in India — probably a first of its kind, Rajan said.

Investments into private equity have traditionally come from international PE funds that were channelled into the India ecosystem by foreign investors, Rajan explained. By contrast, there are fewer players raising domestic capital and they need to go to every FO separately to raise funds. But this is likely to change, as the depreciation of the rupee underlines the importance of a more established domestic capital base.

With the FoFs structure — a core investment vehicle accumulating and aggregating capital from different families and allocating them to larger fund managers — Waterfield hopes to “encourage a domestic ecosystem for FOs”, Rajan said. “We have much more bargaining power in terms of working with the investments that we make.”

Clients are conscious of the issue of confidentiality, she explained, but the three implications of the FoFs structure can address this. “First, there is only a single check going into the investor/investing company, instead of multiple checks. The other is that we can clearly get better terms, because it is a larger pool. Thirdly, the structure enables us to do secondaries trading amongst families.”

Another distinguishing factor of the FoF structure is the absence of a distribution fee with the funds. “At the end of the day, our role is the capital allocator,” Rajan pointed out.

And with direct access to the fund managers, Waterfield has obtained data and metrics of the funds and established a database that now tracks the performance of close to 150 funds.

Rajan was upbeat about the reception of the fund in the coming months. “Everyone is beginning to realise that 2020 could be a fantastic vintage — if you are in the position to have capital which you can deploy, chances are you will come out a winner.”

India allocations as part of portfolio diversification
On the other hand, Waterfield is looking to develop its offshore capabilities, in a bid to not only extend advisory services to its clients’ offshore assets, but also to lure assets from HNW families in the region into India.

“We are focusing on two parts. One is advising resident clients with offshore assets, and the other is attracting, at some point, the wealth of international FOs that are considering India allocations as part of the diversification to avoid geopolitical risks,” Rajan said, indicating that the animosity between the US and China could prompt investors to look at geographies such as India.

Waterfield has collected US$6 million through fundraising and partnered up with one of its investors, Zephyr Management, which was founded in 1994 by Thomas C. Barry, who used to be president and CEO of Rockefeller & Co., the entity that manages the personal money of the Rockefeller family.

Rajan said the partnership would help Waterfield capitalise on Zephyr’s expertise in “advising clients on taking international exposure and moving a part of their assets offshore to diversify the risks”.

“Our desire is to ultimately set up an office in New York — the first off the blocks — and then a second one in Singapore. We want to cover locations such as Hong Kong, Dubai and London as well, in order to attract capital to come into India over the next five years or 10 years, so it’s a long term play that we are looking at.”

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