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  • Writer's pictureFirst Water

Public equity model: A profitable bet for family offices and UHNWI’s

Updated: Dec 17, 2021

Extracts from CNBC - 18. The objective for the Family Office and UHNWI is the same, to view their excess cash as a business in itself, with the aim of diversification, wealth preservation and to make their money work.

This week’s guest columnist is Ricky Kirpalani of First Water Capital, a investment advisor that invests in the Indian equity markets. Though very much under the radar, Ricky is rated as one of India’s marquee investors amongst those in the know.

Prior to launching First Water Capital, Ricky was an independent business analyst and organically took a private pool of capital from USD 3.15m to USD 174m over a 15 year period.

Public Equity Model - A profitable bet for Family Offices and UHNWI’s

India is one of world’s most vibrant economies. With each passing year it keeps adding more billionaires and UHWNIs and we keep hearing of inspiring success stories of individuals who have created wealth for themselves with some establishing Family Offices to formally manage this. The objective for the Family Office and UHNWI is the same, to view their excess cash as a business in itself, with the aim of diversification, wealth preservation and to make their money work.

Occasionally, there is a hesitancy towards investing in the equity market as a result of prior pain experienced, likely due to entering and exiting at the wrong time due to the age-old influences of fear and greed. Being a successful businessman doesn’t not necessarily translate into being a good investor.

However, I would argue that finding a good fund manager and investing in the stock market is the best way of achieving diversification and generating wealth through the power of compounding.

One benefit is diversification of risk away from the one’s core business. While it may seem that many businesses are invincible during their time in the sun, if Nokia, Blackberry and General Motors can fail, anyone can. Today’s Apple maybe tomorrows Kodak.

However, by allocating some of one’s cash flow to equities on a continual basis. You are immediately diversifying into businesses that are likely bigger than one’s own, in different industries and even different geographies. They are already established, have a market share, experienced management, and needs little involvement from the UHNWI as well as being legally ring-fenced.

Some people may try to do this themselves by trying to set up a new business, but they must go through the grind of familiarizing themselves with a new sector, finding the right management and acquiring new customers. It takes time and that element of luck that was there the first-time round may not be there. It is sometimes the case that the promoter spends more time trying to make the new business work and loses sight of the business that built his wealth. Case in point Kingfisher.

Public equity is also a better business model than Private Equity and dare I say it VC, the flavor of the month. There are some key advantages that being of time to deploy, concentration and liquidity.

With a private equity/VC, an investor needs to identify a target, do due-diligence, which is both costly and time-consuming. Then comes the negotiations and discussions on valuations. And after all that, the deal may fall apart and its back to the drawing board. Listed companies already have their accounts publicly available, must follow regulatory procedures and may be covered by research analysts, who comb through their numbers.

Liquidity is another big reason for family offices and UHNWI’s to diversify into public equities. Funds can be deployed at a click of button. Investments can be made piecemeal and over a period of time and redeployed between investee companies. Whereas for both VC and PE, investments are usually chunky and illiquid, highly dependent on the mood of the market and the manager whether a profitable exit/IPO can be made.

Also, who sets the valuation? With PE and VC it is generally the owner/promoter who has built the company. Very likely he will want a premium because he knows his business and the effort and time it’s taken to build. However, with public equities, one can even buy shares at a discount to book value, because the price is often set by retail. While promoter and institutional holdings can be seen as sticky investors, unfortunately it is retail that gets carried away with FOMO when times are good and lacks the courage of their conviction when the market falls.

This is generally because they do not see themselves as owners of a business but are influenced by price-action and jump in because they see other people are getting rich and get out at any cost when they see red, without truly understanding the company’s intrinsic value. It is because of this, that one can sometimes buy stakes in businesses at less than book value, i.e. less than what the business costs to create.

All the above inherent features of public equity make it a very attractive investment vehicle for family offices and UHNWI’s to achieve their objectives.


This article expresses the views of the author as of the date indicated and such views are subject to change without notice. The author and First Water has no duty or obligation to update the information contained herein. Further, the author makes no representation, and it should not be assumed, that past investment performance is an indication of future results. Moreover, wherever there is the potential for profit there is also the possibility of loss.

This article is being made available for educational purposes only and should not be used for any other purpose. The information contained herein does not constitute and should not be construed as an offering of advisory services. Certain information contained herein is based on or derived from information provided by independent third-party sources. The author believes that the sources from which such information has been obtained are reliable; however, he cannot guarantee the accuracy of any of the information provided above and has not independently verified the accuracy or completeness of such information or the assumptions on which such information is based. Use information provided above at your own risk.

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