Diversify into uncorrelated asset classes to generate long-term alpha: Manu Awasthy, Centricity Wealth

Therefore, diversification into uncorrelated asset classes and discipline with respect to asset allocation is key for generating long-term portfolio alpha, Awasthy told ETMarkets in an interview.

Having spent more than 2 decades in the wealth management industry, Awasty sees technology platforms driving hyper growth for the industry in the coming years.

“We believe the next phase of evolution will be centered around usage of technology platforms and the role these platforms will play in the way clients transact, review and analyze portfolios,” he said. Edited excerpts:

You have been in the wealth management industry for over 2 decades now. How has this industry transformed over the past decade, and what scope for growth do you see in the coming years?
The last 2 decades has been an exponential growth phase for wealth management in India in terms of the addressable market size, sophistication of the consumer and spectrum of investment products available.

The 2008 financial crisis and its fallout was a watershed moment for this industry, witnessing the exit of many multinational wealth majors. But we also saw the emergence of large homegrown players who had a better finger on the pulse and understood requirements of their clients more closely.

This phase was interesting because it saw a departure from propositions centered around “brands” to propositions based on genuine value add to clients and unprecedented innovations around financial products.

We believe the next phase of evolution will be centered around usage of technology platforms and the role these platforms will play in the way clients transact, review and analyze portfolios. That wealth management will see yet another era of hyper growth in the coming months and years is an understatement.

In volatile market conditions like the one we are seeing now where knowns and unknowns persist, how should one seek alpha?
The more things change the more they stay the same. Every century, decade and year witnesses its share of volatility, upheaval and unpredictability. So, it’s virtually impossible to predict or ride the volatility.

Diversification into uncorrelated asset classes and discipline with respect to asset allocation is key to generating long-term portfolio alpha.

What kind of changes have you seen in portfolio diversification by retail investors?
Retail investor participation in equity as an asset class through stocks, mutual funds have touched new heights recently mainly due to increased risk appetite and reduction in returns from small savings instruments.

Further, new retail investment asset classes have enabled retail investors to participate in hitherto inaccessible asset classes for diversification. Fractional real estate, fractionalized bonds, P2P etc. have opened new avenues for portfolio diversification at lower thresholds.

How has your wealth tech platform performed since inception? Could you share some numbers?
Centricity is a tech forward B2B2C wealth platform. Our end user is not an investor but the advisor/IFA/MFD who in turn manages wealth for an investor.

Our tech platform, One-Digital, covers 4 main aspects of running an independent wealth management practice – a wide range of investment products, multi product digital transaction execution, an efficient tech platform for not reporting portfolios but also running analytics and reviews on the same.

Since inception a year ago, we have onboarded 125 IFAs as a “closed user group” to use our platform and give us useful feedback to refine the same. We are managing an AUM of Rs 1,500 Cr. and delivered revenue of Rs 6 crore in FY23.

Transaction fees form a chunk of the total collections for investment platform providers such as yours. How has the trend been and how do you expect margins to pan out in FY24?
Our revenue model is split into two streams – 1) Revenue from financial product distribution and 2) Revenue from SAAS product subscription.

We expect margins to compress in FY24 as product expense ratios may be further rationalized by the regulator. Volumes on the other hand, are expected to go up significantly that will translate into revenue growth.

How many clients have you onboarded last year, and what’s the plan for this year?
We onboarded 125 IFAs and 250 clients in FY23, and expect to onboard 750 IFAs across 1,000 clients.

As a percentage of sales, how much is your marketing and promotional spend? Do you see this inching up?
For FY23, marketing spend was about 2.5% of the topline, and it is expected to go up to 7.5% in FY24.

What are your expansion plans for the next year, and would this entail any fresh investments?
We are currently present in 3 states and expect to expand operations in 6-8 states by the end of 2023 post which, the focus will be to consolidate and stabilize revenue growth. This plan will not require any fresh investments and internal accruals will sustain the cash burn.

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