Accredited investor framework to pave way for innovative products

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The accredited investor framework will allow wealth managers to offer innovative products to wealthy investors. Investing in unlisted companies by the Portfolio Management Services (PMS) could be one of the biggest trends that could emerge once the Securities and Exchange Board of India (Sebi) implements the framework.

“The regulator has only approved the framework as of now. It has not yet issued the details. We are waiting to read the fine print. However, the move would open up the possibility for PMS to offer unlisted securities and bespoke strategies to accredited investors,” said Somnath Mukherjee, managing partner and CIO, ASK Wealth Advisors.

Agrees Nitin Jain, MD and CEO, Edelweiss Wealth Management. “At present, PMS cannot sell unlisted securities to clients. The framework will allow PMS to help build the client a portfolio with listed as well as unlisted securities”.

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Wealth managers believe that it’s a significant opportunity as the tech ecosystem in India is still largely unlisted. Think of billion-dollar tech start-ups that are years away from going public. The framework would allow for significant allocation to the sector in an equity strategy.

“Permitting PMS investment in unlisted securities for accredited investors offers a lot of flexibility that enables wealth managers to provide customised offerings to large accredited investors,” said Gaurav Awasthi, Senior Partner, IIFL Wealth.

While PMS offering investment in unlisted securities could be the most significant trend, the framework would also allow funds to provide other innovative strategies.

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For example, PMS companies can offer concentrated portfolio strategies with two-three stocks. At present, there is a cap on the maximum investment a PMS can make in a single stock. Similarly, wealth managers could also offer multi-asset class portfolios to clients with equity, currency, commodity and realty.

According to Jain, once the regulator implements the framework, there could be a rise in external asset managers (EAM) in the country, which is a big trend globally.

“Many relationship managers in wealth management firms and PMS earn the absolute trust of the client over time. The clients are willing to move with them when they change companies. In many parts of the world, such relationship managers become independent advisers or EAM. They offer advice to clients on investments and other wealth management aspects,” said Jain.

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Depending on the fine print of the framework, the wealth management industry could see more investors preferring to work with EAMs like it’s happening in other parts of the globe.

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