Meet the global banker who bets on Indian startups

LGT Wealth India manages ₹ 11,000 crore in client assets. It operates under a PMS license to provide advice and execution services to its clients, and it also has a distribution business. LGT, a large private banking and asset management group owned by Liechtenstein’s princely family, entered the Indian wealth management space in August 2022 by acquiring the business of Validus Wealth, founded by Singh.

Singh shares his portfolio details and investment strategies for the Mint’s special Guru Portfolio series. Edited excerpts from an interview.

How is your portfolio allocated between equity, debt, and other assets?

My personal portfolio is structured towards equity. So, I would say about 45% in Indian equities, 30% in listed and 15% in unlisted. Cash and Indian debt make up for about 20%, and gold, 5%. I also have investments in global stocks and bonds as well (see graphic). I own the place that I live in, but nothing beyond that in terms of investment in real estate.

What about international equity?

If I look at my overall financial market portfolio, it’s split 50:50 between India and international. One of the core theses that we have had for a long time at LGT Wealth is that Indian families are not globalized enough. There is a tremendous opportunity to allocate to global investment opportunities. The rupee, like any emerging market currency, has a depreciating bias and is prone to risks. It’s very difficult to do multi-generational wealth preservation in a single market, single currency situation.

As an NRI who is back in the country, I had the advantage of having a large part of my portfolio in global equity. But I tell clients to keep at least 20% of their wealth in global products and services, and aligned to the dollar, and the rest to be allocated to India.

How do you shortlist unlisted businesses? What is the largest unlisted company in your portfolio?

As a firm, we look at a lot of businesses and entrepreneurs for our clients. We work with private equity funds and rely on their due diligence. So, when large institutional investors invest in some of these companies and they negotiate the terms of the deal, valuations, etc., we bring our private clients to invest in the company. So, as we evaluate these companies, I also personally end up investing in them. So, our clients invested in Dunzo and I, in my personal capacity, too, invested there. Miko, a companion robot company for kids aged 6-10, is another of our very high conviction ideas. And, the third is NRT (NewSpace Research and Technologies), one of the leading drone companies in the country working with the Indian Air Force and Indian Army.

Is all your equity exposure only through direct stocks?

No. I have a mix of three—direct stocks, mutual funds and PMS (portfolio management service). The split is probably equal, one-third each. There are some parts of the market where there is no way to create alpha.

Here, mutual funds or ETFs which are low cost and tax efficient, work very well. But then, there are some very, very good PMS managers that I trust, especially as you go into mid cap and small cap. You want these managers to apply their intellect and framework to pick the right winners. So, you have a place for that too.

And then, there are some stocks in India (such as HDFC Bank) that you always want to hold for very long periods. So, those I hold directly.

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Which was your first stock pick? Are there any stocks that have worked out well and others that haven’t?

I’m sure my first ever stock pick bombed because I graduated in 1999 and it was the peak of the dot-com era. Everybody wanted to pick stocks, and probably 99% of those stocks don’t exist.

There are two that have really worked well for me. I was employed by Merrill Lynch which was later sold to Bank of America. A lot of my stock options that I got were at very low levels because this was right after the financial crisis. So, the cost of acquisition was very low and then as the market normalized, for the next 15 years, all the banking stocks ended up becoming multi baggers from thereon. So, I didn’t pick it, but as a stock, the Bank of America stock would be by far the largest contributor.

One other thing that has worked for me are banking stocks, particularly SBI. Given the size of banking industry in India and then this being completely tethered to the Indian economic cycle, they are the best proxy for it. Some banks can be mismanaged but as a sector it is very well aligned.

But, one of the disappointments have been PSU stocks. Companies like NTPC and BHEL had great earnings, were trading at good valuations etc., but some of those never really delivered returns.

What has been your portfolio return since inception?

Equities would be 12-13% and debt, 8-9% (CAGR, 2010 onwards). Private market investments have done better, but a lot of those are not harvested yet and so are paper returns.

What have been the major drivers of your equity and debt returns?

For Indian equities, I would say that would be: not making any mistakes, being clear about your strategy, not going for multi baggers and hence not end up burning your capital, and being long-term oriented. And with debt, be a little mindful of where you’re investing. Don’t take any risk while investing in debt because you’re investing in it for a particular purpose.

I tell investors that Indian equities is a 14-15% compounding asset without doing anything spectacular. With Indian interest rate structures as they have been, if you really did it sensibly, 8- 9% is a reasonable return to expect in debt.

What do you hold in your debt portfolio?

Debt is about creating a portfolio of yielding instruments that are uncorrelated, because as you do that, you reduce the variability of the overall portfolio. So, in debt, I have high quality bonds and MLDs (market linked debentures). With MLDs, you can invest in A-rated high quality NBFCs and they are also tax efficient. You are taking some credit risk, but you are getting rewarded for it. (MLDs are a hybrid product where the return is linked to the performance of an underlying index. Their favourable tax treatment, if sold before maturity makes them popular.)

There is a component of venture debt, and InvITs and REITs as well in my portfolio and then some money is kept liquid. What I like a lot in my debt portfolio is long-term insurance (non-participating plan).

Do you have health and life insurance?

There are two types of life insurance that every family should think about attached to two specific needs.

One is a term insurance to take care of your family after your death. I have a life cover (including that from my company) which provides income replacement for six years for my family. The second need, which is more likely for most people, is that you actually need a steady income once you stop working. A non-participating plan is very effective in converting your investment today into an annuity that gives you unconditional, guaranteed, and tax-free income for, say, the next 25 years.

One should definitely have health insurance. I am a bit guilty of not having one because my firm takes care of it.

What does wealth mean to you?

Wealth is something that gives you the freedom to do what you want to do, even professionally. Anybody who has wealth is privileged to invest their time into things that they like and that’s how they should look at it, and nothing beyond that.

(Note to readers: Although Singh uses insurance as an investment in his debt portfolio, it is Mint’s view that insurance and investment should not be mixed.)