Stirring The Status Quo In Wealth Management
The idea behind True Beacon is to inspire more accountability in the wealth management space
After an astounding success removing inefficiencies in stock trading through Zerodha, Nikhil Kamath has set out to disrupt the wealth management space with his next venture True Beacon, an asset management firm aimed at ultra-high networth individuals (UHNIs).
The idea behind True Beacon is to inspire more accountability in the wealth management space, says Nikhil.
“The sector has remained static for several decades,” says the co-founder and chief investment officer. “A majority of the fund managers often don’t outperform passive investors, and this is exacerbated by traditional fee models that tend to eat heavily into profits. To infuse more accountability, we founded True Beacon.”
Founded in 2019 by the Kamath brothers, True Beacon is a liquid hedge fund that eliminates up front management fees and entry/exit loads, which traditional funds come loaded with, by charging its client investors a 10 per cent performance fee on profits at the end of the financial year, based on the high watermark (highest value that an investment has ever reached).
“This ensures we make money only when our investors do and that they are not charged twice for the same returns,” says Nikhil. He explains:
“If I invest INR 100 in an AIF (Alternative Investment Fund), at least INR 1-2 will go to the distributor, another INR 2 annually to the fund manager coupled with a setup cost and exit load, etc. So each time I invest INR 100, I am giving only INR 96 to the fund manager. On top of it, I have to keep giving him additional INR 2 annually. So, if I were to keep money with this fund manager for the next 10-20 years, the odds of him outperforming the market benchmark are thin. At True Beacon, we have removed the distributor, deal directly with the client and don't have any exit load either.”
The company started with a category III AIF or CAT-3 AIF (sort of hedge fund) titled True Beacon One as their first product. Against the sophisticated target of outperforming the NIFTY50 benchmark by 6 to 8 per cent, the fund actually recorded an outperformance of 26.6 per cent within a year since its launch, with annualised returns of 29.7 per cent.
Commenting on the impressive first year of the wealth management firm, Nikhil says “We set out to change the way HNI and UHNI investors manage their wealth and I definitely think we are on the right track.”
Work on the launch of two new funds, one in CAT-3 AIF and other in CAT-2 AIF (real estate and PE funds), is underway, points Nikhil.
True Beacon has recently registered an foreign portfolio investment company in Mauritius named True Beacon International in a bid to attract foreign investment into the Indian capital markets.
The Bengaluru-headquartered company’s clientele comprises a mix of entrepreneurs, promoters, senior corporate executives and established businessmen with an average investment ticket size of USD 1 million. The company also adds strategic value to their client's portfolios by offering co-investment opportunities in the form of real estate deals, next-gen, and philanthropy programs, arising in their network at no charge, says Nikhil.
On Replicating Zerodha’s Success
On being asked whether Zerodha’s mega success puts pressure to make it big in wealth management as well, Nikhil says he is just really focussed on solving the problem at hand.
“At the outset, we started Zerodha to reduce inefficiencies and remove redundancies and the success was a by-product. It is a similar ethos for True Beacon where we are looking to disrupt an industry that has not seen any changes in the past few decades.”
The company doesn’t have revenue pressures either nor are they focused on making profits as of now, he adds. “This company is meant to disrupt the status quo and we will personally back it up until it gets to that point.”
“We want to reduce inefficiencies in the asset management space for ultra HNIs and we will strive towards that goal. So as far as profits are concerned, of course it will not come in the first two-three years. If there happens to be a word of mouth publicity of our efficient model, new investors will come and the corpus will grow. With significant scale, we'll be able to earn profits.”
To stir the status quo, one needs to stand out from the crowd. True Beacon claims to be that outlier with its industry-first differentiators. “Zero statutory management fees, zero-entry/exit loads, and a super-efficient execution platform are factors that make us more client-aligned, and more lucrative to investors that are now becoming increasingly aware of how inefficient traditional wealth management models can be,” says Nikhil.