Distressed assets get a look in from HNIs again

Wealthy individuals —- with corpus ranging from Rs 50 lakh to Rs 50 crore —- have started lapping up distressed assets again, signalling a return to ‘high-risk, high-return’ strategies.

Understandably, the returns from such assets are higher than those from other asset classes. Going by wealth managers, the returns even beat those from equities by as much as 5-9%. So, where the investors’ money doubled in five years earlier, it could do so in three years now.

“The appetite for riskier investments has improved starting from the second quarter of 2009. Now, people are willing to discuss such propositions and are making investments in them,” said Hrishikesh Parandekar, CEO, Karvy Private Wealth.

“Investors have realised that even equity can only give you a return of 14-15% on average. If they are looking for better returns and have the appetite for risk, they look at returns of 24% from investments in distressed assets,” said Karan Bhagat, CEO, IIFL Private Wealth Management.

Essentially, companies who need to raise funds but are unable to do so at regular rates from banks, turn to other organisations and entities which have a greater appetite for risk and are willing to lend a hand, albeit at a higher rate of interest.

These include non banking finance companies who also have sister concerns managing assets and advising HNIs on investments.

If an NBFC finds a company worth lending to, after running standard risk assessment procedures, it provides part funding and pitches it as an investment to the clients of its wealth advisory who have a similar appetite for risk to provide the remaining funding. 

This is how it was with a realty project with ready construction, which needed to raise Rs 225 crore in additional funding recently. The company has roped in an NBFC to provide a part of the funding directly and raising the rest from the high networth clients of its wealth management business. The companies requested not to be identified as the transaction is still in process.

Other than real estate, education and smaller technology companies are among those the HNIs are betting their money on.