AAM to stimulate the liquidity and depth of the Indian capital market: Indus Valley Partners

Bijesh Amin, Co-Founder, Indus Valley Partners, spoke to Dataquest regarding the need for Alternative Asset Management (AAM) how it will become a ‘need to have’, not a ‘nice to have’ in India. Excerpts:

Can you briefly tell us about Indus Valley Partners? How do you see the Alternative Asset Management space evolving in India?

We've been in business for 16 years and have seen several market cycles (e.g. dot com boom/bust, Sept 11th, Lehman Brothers/2008 credit crisis). We were initially focused purely on investment banking and capital markets but we are now focused exclusively on Alternative Asset Managers such as Hedge Funds and Private Equity firms.

Alternative Asset Management will become a ‘need to have’, not a ‘nice to have’ in India. The expertise and performance, a lot of these kinds of institutions bring to the table is sorely needed in a market as mono-centric as India's. By mono-centric I mean listed equities-oriented. India does not have well developed bond/credit markets or liquid or the diversified derivatives markets that a growing economy needs from its capital markets. Most investors - retail or institutional - just play the BSE and Sensex and the names listed on them.

The Indian government is already engaged with several prominent Private Equity firms to help in restructuring non-performing loans held at Indian Banks. They have the expertise and track record with these asset classes. Additionally and more fundamentally, pensions will need the sort of absolute, non-correlated performance that many Alternative Asset Managers can bring to the table. Being solely reliant on the Indian stock market's performance and the sclerotic government bond market to meet pension liabilities does not give a very diverse return profile to meet future liabilities. Domestic inflation - across retail and capital goods - has been a real wakeup call in this regard.

IVP has its R&D center located in India? How does it help you?
The talent pool is relatively deep for STEM. The workforce is proficient in working English and has an international mindset. The founders are both Indian/of Indian descent. We have also built a unique business model for India which does not consider India to be a "back office" but quite the opposite - as a font of ideas and creativity - which can be harnessed to the benefit of our clients. Our employees from the most junior to the most senior constantly rotate to our clients across the globe on projects and product implementations to provide expertise and insight and not as a source of cost/labor arbitrage. This is unique and differentiating and something we are very proud of.

What is the AAM market like in India? What are your plans in India and what markets do you target to address?
At this stage it is an emerging market within an emerging market! SEBI is slowly encouraging AAMs to set up in India as domestically domiciled FIs. This is a good thing and needs to be encouraged for the reasons mentioned earlier. AAMs will also stimulate the liquidity and depth of the Indian capital markets in general which is a good thing for Indian economy as a whole.

Our plan is to be strategically positioned to help stimulate the growth of the AAM industry in its current infancy. Our deep expertise, relationships with the biggest players in the industry and knowledge of the details on how to support these trading strategies and asset classes will hopefully prove to be invaluable for both domestic players as well as foreign institutions keen on entering India.

IVP supports a trillion dollar asset. What kind of technology solutions do you provide to your clients for their portfolio management?
Yes, we currently support over a trillion dollars of assets across our solutions and platforms. Our technology can be broadly split into two camps; enterprise (installed on client infrastructure) and cloud (hosted on our secure, encrypted cloud platform). Within that our solutions encompass everything from portfolio analytics and big data to regulatory reporting and data management and machine learning.

What is your client base like? How many clients do you have here in India?
We have over 120 clients across every asset class and trading strategy, including hedge funds, private equity firms, family offices, and pension plans. Many of our clients are the largest, most prominent names in the industry. In India we currently have no domestic AAMs but many of our clients are actively involved in India either restructuring non-performing bank loans, funding startups or working on JVs with domestic players.

Do you think data-centricity is the key imperative for AAM industry?
I think data empowerment is the key imperative for the AAM industry (and every other industry for that matter). Big data, Machine learning, Algorithm-driven decision-making, whatever the specifics of the technology involved - the confluence of more economic activity moving online and the need to analyze the vast data sets that are being created - makes this a business imperative for everyone. It is why start-ups have such a tremendous edge over traditional players who are tied to monolithic systems and platforms that were never designed with the current paradigm in mind.

What are the trends that will drive growth in assets in India?
SEBI's softening attitude to AAM in general has and will continue to help. The search for yield by global asset managers will help economies like India. The structural need for a more diverse investable asset base and more liquid markets will also play an important part. But the government must not kill the golden goose before it has a chance to lay its eggs. Creating an encouraging macro-economic environment and having a less interventionist approach will help provide the context in which both domestic and foreign asset managers will be comfortable operating in India for the short, medium and longer term. Singapore is an example of what can be achieved under such a policy.

How do you think SEBI allowing FPIs trade directly in capital market will impact India?
It will help to deepen and diversify these capital markets. This cannot be underestimated in terms of the positive externalities that will result. The nexus of big banks, family conglomerates and "persuadable" politicians has not been a great servant to the Indian economy - this has been well-documented and apparent to anybody looking at the relevant economic indicators (gini coefficients, retail price inflation, house prices, rents etc.). More diverse players who are less "influence-able" by non-economic factors in their decision-making are sorely needed. I think SEBI recognizes this, hence it’s more encouraging policy towards AAMs.