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The Pedigree of Money

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The Pedigree of Money
The Pedigree of Money

Growing wealth is an art. All of us claim to know it, but to grow others’ money while they are sleeping, needs passion first, business later.

Many do this for living, but few do it so well that they inspire their family to join the same trade. Fundamentals get passed on to the next generation, but not innovation and ideation. They grow with each generation to keep the business running and flourishing.

These family-run financial businesses have not only succeeded in fortifying citadels of finance but eventually, have helped shape the Indian capital markets. The pleasure of growing wealth is infectious among these families. Eventually, this passion was passed on to the next generation, not as an obvious choice but as an option.

 

Prabhudas Lilladher

Prabhudas Lilladher was registered as a partnership stock broking firm in 1944 and provided equity arbitrage and stock broking services.  In the 70s they offered door step service and added IPO distribution and underwriting to their bouquet of services. During the 80s, it was corporatised as a BSE member and the first to computerise back office operations. Between 2005-08, the firm raised $2 billion for the Indian corporates. The firm has evolved from a standalone brokerage firm to a one-stop shop for companies for all financial services. It has always been applauded and admired for the focus on high quality research. Its customers include more than 150 leading domestic and foreign institutional investors from Singapore, Hong Kong, the US and the UK. It has business activities with leading insurance companies and treasuries of major banks in India and is also empanelled with all the mutual funds of the country.

“DSP, started by my great-grandfather Purbhoodas Jeevandas Kothari, is more than a 152-year-old company. They must have started doing business under the banyan tree,” said Hemendra Kothari, Non-Executive Chairman, DSP.

Since the time Kothari entered  the family business in 1969, he has seen many ups and downs in this sector and faced several challenges.

The challenges: to get employees join the market, to attract the right talent, and compete with existing players. “I had to compete with established players like Grindlays Bank. They had started the first merchant banking office in India and did most of the underwriting themselves. But when I did underwriting, I used to sub-underwrite my exposure, as I didn’t want to take risks,” said Kothari.

Deven Choksey, MD, KRChoksey Integrated Financial Solutions, claimed that the company is associated with the capital markets since 1912. And, in 1979, it was carved out as KRChoksey Integrated Financial Solutions. “As a company, we saw India’s capital market in a purely speculative mode. We followed an investment-based counselling approach,” said Choksey. Even today, the company’s investment decisions are based on corporate and fundamental research.

Established in 1944, Prabhudas Lilladher, another doyen in the Indian capital market space, has come a long way, from the days when trading was done on the floor. “It has been a satisfying journey as we have been able to meet the expectations of our clients through our focus on integrity, robust research, and customer centricity,” commented Arun Sheth, Chairman  and MD, Prabhudas Lilladher.

Bajaj Capital, founded by K.K. Bajaj, entered a highly unorganised financial planning sector in 1964 with the sole aim to create financial awareness through professional guidance. “K.K. Bajaj believed that investors deserve more than bank fixed deposits’ inflation-matching returns, and pioneered innovative schemes of the company fixed deposits,” said Rajiv Bajaj, Chairman and MD, Bajaj Capital. More than a family-run business, the company is now transforming into a more customer-centric organisation.

Shanti Narain Aggarwal and Bharat Bhushan, meanwhile, set up a stock broking firm Bharat Bhushan and Company from a small rented mezzanine office in Delhi’s Connaught Place in 1954. And keeping the partnership alive, Nisha Ahuja (daughter of Aggarwal) and Vijay Bhushan (son of Bhushan) have been working together since 1990. Over the years, they have added other financial advisory and wealth management services. “We have not been reckless with business development, but a constant part of our journey is our ability to evolve with, and adapt to the time,” commented Vijay Bhushan, Partner, Bharat Bhushan and Company.

Another fine partnership in the financial markets between Anand Rathi and Pradeep Gupta, which started in 1994, continues to scale height even two decades later. A statement on the company’s website states, “We focus on ‘uncomplicating’ the entire process of private wealth management for each client.” It claims their advisory is backed by a strong product and research team.

 

Bharat Bhushan And Company

They pride in being a relationship based company. The Bhushans have always stressed on the need for information value addition. The firm evolved from merely providing transactional services to clients to full- blown financial advisory services.

The firm strives to maintain direct access to its clients and employees even after servicing a large retail client base. In today’s world of automation and robo-advisory, the firm’s priority to maintain direct connect is bound to help them achieve greater heights

 

 

Investing in Ideas

It is not easy to invest hard-earned wealth based on certain projections that one does not understand. So, you are left with the option—Trust—that is on what these financial firms have built their businesses. However, today’s investors, armed with technology, are prone to ask more questions. Sharing his perspective on this, Choksey said, “Anything and everything that produces wealth should be the focus area and that is the one-line mission statement that we carry in our organisation.”

Meanwhile, in the last 50 years, Bajaj mobilised deposits for more than 500 companies including government companies, public sector units, private companies, non-banking finance companies and housing finance companies as per the Companies Act guidelines. At times, few companies failed to make maturity payments to the fixed deposit holders, despite having approvals from the Registrar of Companies during its launch. “Even during challenging times, we stood with depositors in claiming their hard-earned money from the defaulting companies,” added Bajaj.

Being true to one’s values at times means going against the popular mindset. For Prabhudas Lilladher it happened in case of the National Spot Exchange Scam. “When participation was supported by all brokers, we did not feel that it was in the customers’ best interest. We opted to sit that one out, which eventually turned out to be a good call,” said Sheth. Similarly,  during  the 2001 financial crisis,  many brokers involved in badla finance had to bear the brunt. “However, Prabhudas Lilladher emerged unscathed due to our principles of integrity and ethics,” revealed Sheth. Another important challenge was in 2008 when the markets tanked worldwide. And it was the employees who took a voluntary pay cut to allow the company to tide over the rough times. Speaking on similar lines, Nisha Ahuja, Partner, Bharat Bhushan and Company, commented, “Financial services, as a sector has always been adversely affected by policies, politics, global economies and tech disruptions. Since we were never reckless with our business,  the expansion, or trading, we have never had to resort to closing any office, turning away a client, or laying-off employees.”

Reputed financial companies like Nimesh Kampani-led JM Financial and Anand Rathi Group work on a similar principal. Amit Rathi, MD, Anand Rathi Group, in the company’s video cast commented, “We tell clients what they need to  do and not what they want to do.”

DSP

Purbhoodas Jeevandas Kothari started his stock broking business in the 1860s. Later, his grandson Damodar Samaldas Purbhoodas continued the family business under his own name that is how the name DSP came along  They claim to be the first registered firm as per the stock exchange. The firm has seen the turmoil in the stock market and has not only survived it, but also provided enough guidance to its peer group.

 

Big Decisions

Kothari remembers, when they entered the business, the stock market was in shambles as forward trading got banned and banks were nationalised. He was given the task of getting the firm re-empanelled with the RBI. Interestingly, nobody from the firm had visited the central bank for over a decade. “It took three years of persistent hard work and a thorough understanding of the business to achieve this. I did a lot of agency business and then in 1970, I started the equity brokerage segment for institutional business. By 1972, DSP was among the top two or three firms on the BSE,” said Kothari.

Speaking about other achievements, in 1995, on the back of India’s economic reforms, Kothari entered into a joint-venture with Merrill Lynch (ML). The challenge was to get them to enter into a formal partnership. “I convinced them to take a 40 per cent stake. They also agreed that all decisions had to be unanimous. In the intervening years, I saw four changes in their chairmanship, but the DSPML partnership continued and I always remained the chairman – it was an institutional relationship,” shared Kothari. In 2009, he sold his last 10 per cent stake in the partnership to Bank of America, which took over ML in a global merger the previous year. Kothari exited the company.

Also in 1996, Kothari entered the asset management business in a joint-venture with ML’s asset management firm, Merrill Lynch Investment Managers (MLIM). In 2008, as an extension of the merger between MLIM and BlackRock overseas, BlackRock acquired the 40 per cent stake held by DSPML and the company was renamed DSP BlackRock Investment Managers. “Last year, BlackRock wanted to increase their stake but as I wanted to continue our family business and the DSP name, we amicably parted as partners,” said Kothari.

During the testing times,  certain strategies adopted by bigger financial firms had helped investors in big ways. And even today, research-based counseling remains their biggest strength. Choksey reminiscences one particular phase of their journey. He pointed out, at the time when he had started, major institutional players, apart from Life Insurance Corporation and Unit Trust of India, and foreign players were missing. Instead, market investments were mostly done by individual investors without any scientific approach. “We started with a research-based counseling approach and operated as an advisor to the investors,” he informed.

When the stock exchanges refused to provide any trade guarantee, in case of broker default, Vijay Bhushan recalled, the firm decided that the loss would be absorbed by them and not by the clients. The biggest challenge came for the Bhushan firm in 1969, when overnight, all forward contracts were converted into deliveries, and almost one-third of the brokers could not honour their commitments.  “We took loans and bore the losses to secure our clients. Similarly, when there was physical delivery of shares, there erupted many instances of bad deliveries. We created a separate division to tackle it,” shared Bhushan.

In the last few decades, the biggest challenge Bajaj Capital had faced was hiring the right talent. Accordingly, the company began offering financial planning courses through International College of Financial Planning and after completion of  the course, the students were placed at various locations of Bajaj Capital branches. Besides in a big leap forward, in the last quarter of 2018, a new corporate identity was unveiled by the firm. “We call it BajajCapital 2.0. It is a progressive change towards our renewed vision - to help convert a nation of savers into empowered investors,” opined Bajaj.

Speaking of bringing in more professionalism in business as usual, Amisha Vora, Joint MD, Prabhudas Lilladher, commented, “We have brought on board experts in new and emerging fields like digital technology and algorithmic trading.”

Bajaj Capital

The first investment was to educate and develop a pool of human resource to help people who wish to grow wealth. Bring in financial literacy by providing professional guidance on where, when and how to invest has been the moto of its founders.

 

Family Matters

Kothari feels family-run financial firms cannot always guarantee assured returns. However, “The obvious advantage in a family office is commitment and accountability as the family resources are at stake,” he said. He further pointed out that selecting the right people and giving them enough space to operate is the key to success. However, they should be answerable to family members if the business is not going as planned and objectives not met. Putting across another relevant point, Choksey said, “The banks and other intermediaries, which are running a manufactured product approach in selling financial services products, often end up in mis-selling and wealth distortion.” In family-run organisations, all exclusive-personalised approach is followed while selling financial products.

Adding to this, Madhav Bharat Bhushan, Head, Business Development and Strategy, Bharat Bushan and Company, feels, continuity in a family-run financial firm gives a lot of advantage to the investors during policy and regulatory transitions. “Not only have we seen the transformation of the Indian capital markets, but we still have people who have been a part of it and hence, they are able to help clients deal with consolidation of financial assets,” asserted Bhushan. For example, during dematerialisation of physical shares, executives in the larger banks were clueless as they had never seen physical share certificates before. “That is where we came,” he claimed.

Reiterating the philosophy of the founder - “Treat clients’ money like your retired father’s savings, who won’t have another chance to earn it”-  Bajaj commented, “Our commitment towards the lifetime financial needs of the clients is never short-term, rather it rolls from one generation to another.”

Considering that Indian organisations are becoming more professional and technologically advanced, family-run firms tend to have a long-term vision at least in terms of decision making. In family-owned firms, one has to take personal ownership and also the continuity of leadership ensures that there is consistent communication with the customers, employees and partners. “The people at the top care a lot about reputation and ethical practices due to the personal nature of business,” pointed out Sheth.

Regarding the survival strategy of these firms, Hemant Kanoria, Chairman and MD, Srei Infrastructure Finance, highlighted that several researchers have found that in the US, family businesses with annual revenue of between $100 million and $3 billion, were less likely to fail during economic downturns than comparable businesses with other forms of ownership. Many of these businesses are in the second to fifth generations of family ownership, which reflects that these companies have survived 25-100 years of economic ups and downs. “I don’t think this trend would be too different in India,” said Kanoria.

 

Catch Them Young

It is a no brainer that without saving you cannot create wealth. Make saving a consistent discipline and start as early as you can. “Remember as you grow older, the propensity to take risk will decrease. Grow your savings by keeping a reasonable amount aside for the rainy days and put the rest to work,” suggested Kothari. He said that, apart from having a thorough understanding of their investments, the youth should ascertain the asset classes they wish to invest in, depending upon their risk appetite and goals.

The initial experience with equity investments dictates an individual’s attitude towards equity markets for the rest of their lives. Hence, Bhushans always tell the young investors to start with small investments. Start an SIP of an amount that you would spend on a good meal, so that it does not pinch you. Adding to this, Nimisha Gupta, Head, Insurance Division, Bharat Bhushan and Company, said, “Savings invested correctly leads to wealth creation.” However, never get swayed by returns, instead do your research thoroughly, advised Dilip Bhat, Joint MD, Prabhudas Lilladher. “The markets can be profitable, educative and even enjoyable if you keep learning and upgrading yourself,” said Bhat. And fortunately, unlike the previous generations, the millennials are ready to pay the price for the services. However, “The underlying value approach to creating wealth would not change. It will remain same whether it is a millennial or traditional customer,” Choksey added.

The Rathis, on the other hand, feel, it is not completely true that there is a certain age limit by which one should start investing. But age has its own limitations. “The earlier you start, the better it is for you to be able to reap the benefits of compounding the earnings on your investment,” the company’s website dispels this myth.

KRChoksey Integrated Financial solutions

Anything and everything that produces wealth is the focus area of this firm and that is what the one line mission statement that each one carries in their organisation. They pride in calling their firm as “Wealth Creator and Wealth Advisor”. The promoters believe that to be successful, they must create their own abilities, which are required by customers.

Future

Going forward, the family-run financial firms are keen to have a bouquet of financial products that one should offer to their customers. As the customers get more demanding, they are aware of the mega responsibilities they carry, not only towards their customers, but also to the respective brands. “Wealth is not created by trading but by investing. That is how we have remained aloof from others, and you will not find us as contenders who are doing great volumes on the market,” said Choksey.

With the Indian economy touching $5 trillion by 2025, its market capitalisation is expected to double from the current level of $2 trillion. “So our job will be to multiply our investor’s wealth, with the doubling of market capitalisation. We, as an advisor to our clients, have helped them generate a return of over 30 per cent compound annual growth rate consistently, over a period of last three decades,” said Choksey. Goodwill of KR Choksey is larger than its net worth. “But in this new age, we feel that more visibility is required and we are taking steps in that direction,” he added. Bajaj Capital is also working towards revamping its strategy and brand image to remain relevant. Over the years, these companies have also impacted various operational changes, pushing the government and regulators to understand and accept the pressing needs of the investors. “We are proud to have witnessed first-hand evolution of Indian capital markets. We have worked closely with regulators to streamline the policies that have led to the maturing of the Indian markets,” pointed out Sheth. However, with changing business dynamics and technological disruptions, these financial firms need to make a joint effort to address the requirements of the investors from the return and risk management points of view. They would need to extend the same level of service as before, at a time when investors continue to flock to the markets, may not be in droves now, but will soon be. This will bring the issues of safety and security and managing it is going to be a crucial challenge. Decentralisation, both geographical and in decision-making process, will be another major differentiating factor. Professionalisation in all aspects of the business has been an important development and it would require adoption of best practices in business management. Newer asset classes have emerged which needs to be constantly evaluated and suggested with the best course of action.

The art of growing others’ wealth is constantly evolving. While prevailing family-run financial firms are those businesses that aim at creating a distinct niche for their ensuing generation in this domain of wealth management, they also have a responsibility – to retain an existing investor’s trust. And work towards building and further consolidating that trust with a new investor. The result might not reflect on their balance sheet, but will definitely leave behind a long-lasting impact in their ability to manage wealth as well as the ‘brand’ and the same care and passion that these family-run financial firms have demonstrated for years.

Wealth management and brand, both are precious and fragile like the ‘Trust’ investors have on them.

rajendran@outlookindia.com,  aparajita@outlookindia.com,

yagnesh@outlookindia.com

 

Column

 

How the Rothschilds of Deccan Went Bankrupt

Ganeriwal offered loans and insurance before banking system was introduced

Dr. Gita Piramal

Those times were different. If you were a banker in Hyderabad in the mid-1850s, you never went anywhere without your trusted group of bodyguards. Especially, if you were a Ganeriwal.

The firm’s founder, Mahanandram Ganeriwal, left arid Ganeri in Rajputana in 1791. After a decade of wandering around, the upcoming banking dynasty settled in Hyderabad’s Begum Bazar in 1802. The Ganeriwals offered loans, credit options, insurance and currency exchange services. By the mid-1850s, 21  branch offices spawned across several princely states within and outside the Deccan plateau, besides the head office in Hyderabad.

Towards the mid-19th century, traditional banking came into its own. The hundi is a credit instrument or bill of exchange, payable on sight or after a certain date. It had been around since the 14th century, but when conjoined with the telegraph and railways introduced by the British, and the widespread Marwari migration across India, the speed and quantum of money transfers expanded exponentially.

The second piece of luck was Puranmal, the founder’s go-getting son. The family firm gained new momentum. Both had a flair for grand gestures which brought them to the notice of the Nizam of Hyderabad. Mahanandram in 1811 once stopped a beggars’ riot near the Charminar by giving out alms. But it was Puranmal who gained the Nizam’s patronage. In 1825, Puranmal built a Hindu temple on a site which already had a mosque from an earlier period. Today, the Sitaram Bagh Temple is a heritage building. When a daughter of Nizam Asaf Jah IV was about to get married in 1839, Puranmal sent lavish gifts as his contribution to the festivities.

Begum Bazar, where the Ganeriwals lived and worked, was often the scene of sword and gun fights. Newspaper accounts frequently mentioned bankers drawn into incidents of violence. For example, “In 1846, the banker Gomani Ram went with 14 Pathans to coerce payment from a Muslim creditor, but he and six of his mercenaries (as well as the creditor) were killed in the ensuing fight,” described historian Karen Leonard. In 1847, a group of bankers invaded the Nizam’s chief state record-keeper’s palace and forced state repayment.

Royal patronage turned into a double-edged sword for the Ganeriwals as the Nizams’ indebtedness to the East India Company swelled. In 1805, after the British victory in the Second Anglo-Maratha War, Hyderabad came under the protection of the East India Company. The British created a local military force, the Hyderabad Contingent, led by British officers but paid for by the Nizam. The Nizam’s debts to the East India Company soared. More and more hundis flowed to the East India Company’s centres in the Presidency towns to pay Hyderabad’s mounting debt.

Successive Diwans and state officials called on the Ganeriwals again and again for loans, but these were seldom repaid. Puranmal furnished cash towards the Nizam’s household expenses and salaries of military troops. The firm also made personal loans to high-ranking officials, some of which were guaranteed by the government. Many loans were made to talukdars, who used the cash to secure a contract for revenue collection. In return, Puranmal’s firm would receive official signatures on their records, bonds, mortgages or other forms of guarantees of repayment, as well as diamonds, jewels, or gold mohurs (coins).

As these sources dried up, the next Nizam, Asaf Jah V, offered the Ganeriwals a zamindari in Berar – a prestigious privilege with a sharp edge. The Ganeriwals were granted the right to collect revenues from farmers, and could set these off against the government’s loan repayments. The daunting job went to Puranmal’s son, Premsukhdas. The Ganeriwals’ private army expanded to include Arab and Pathan mercenaries.

From 1848, one by one Hyderabad’s biggest bankers became bankrupt, including the family Ganeriwal, once nicknamed the Rothschilds of the Deccan.

Author of Business Maharajas and Business Legends, Dr Gita Piramal is a Senior Fellow at the University of Oxford

Are Family-run Businesses Tech Ready?

For most firms, digitisation has been a top priority in the last two years By Aparajita Gupta

Advent of various technologies has surely disrupted the operation of the family-run financial advisory firms in India. But are they geared up to embrace it fully? Domain experts and various business families informed that most of them have already invested heavily on technology and are reaping benefits.

“Businesses in financial services are among the top three sectors to feel vulnerable with regards to digital disruption. Over 40 per cent of firms feel their business strategy and digital requirements are not aligned (as per a 2018 PwC report). Investing in digital capabilities, thus, has been a top priority for them in the last two years, at least for 57 per cent of financial firms.” said Abhijit Majumdar, Partner - Technology Consulting, PwC.

He further said, large sized family-run financial firms have invested in the foundations of the digital adoption journey about 10 years back. They started with customer relationship management software and business intelligence in the early 2010. Over the last two years, however, the rate of adoption of emerging digital technologies like artificial Intelligence (AI), robotic process automation with the deployment of chatbots, machine learning (ML), voice-assisted services have increased manifold and across the board.  “AI is helping in driving customer centricity, bringing in cost efficiencies, improving risk management and fraud detection mechanisms, and leading to overall profitability of institutions. Hence, financial services players continue to embrace AI,” said Hemant Kanoria, Chairman and MD, Srei Infrastructure Finance.

Adding to this, Rajiv Bajaj, Chairman and MD, Bajaj Capital, said, “It is the financial services industry, which is claimed to have benefitted the most with new technologies.” He thinks, in future, AI will transform the financial services industry by contributing in the following segments: risk assessment and portfolio management, fraud detection and management, robot advisory services, algo-based trading.

In this era of ‘Digital Darwinism’, when technology and society are evolving faster than businesses, traditional finance firms have displayed significant efforts in adoption of technology to streamline and meet the changing needs, said Kalpesh Mehta, Partner, Deloitte India. He said, the emergence of the digital five forces – social, mobile, analytics, cloud and Internet of Things – is helping these firms to reimagine and identify the customer and come up with innovative and easy-to-use financial products.

“It has made financial planning efficient, and enhanced the customer experience. It has improved the level of publicly available information, making it easier for people to take financial decisions independently. In our business, new-age technology is  causing a lot of disruption,” said Madhav Bharat Bhushan, Head, Business Development and Strategy, Bharat Bhushan and  Company.

Is technology, then, taking away the human touch from decade-old financial advisory firms? Absolutely not! The firms are aware of such a risk and have put in effort to strike a balance between the two. “We, at Bajaj Capital, have a unique business model of ‘Tech-enabled Touch’, which is a perfect blend of AI and meaningful human intervention. Many reports have shown that globally, the Tech+Touch is the preferred model for financial advisory and financial investments,” said Bajaj.

A similar ideology was shared by Bhushan. He said, “The world is embracing automation and globalisation. In the midst of such transformation, one often feels a lack of personal touch. This is what we have always offered, and even with upgraded technologies, continue to offer.”

Can technology help these firms become more competitive? Majumdar said: “They very well realise digital will be the next game-changer. Blockchain can infuse transparency in transactions, expedite transactions in trade finance and syndicated loans and enable new trading platforms and business models like P2P lending. AI can provide personalised insights, personal financial concierge and tax-optimised investments to clients and preempt fraud scenarios.”

aparajita@outlookindia.com

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