Hemendra Kothari, chairman of DSP BlackRock Investment Managers, is a wild life enthusiast and philanthropist, who built a family brokerage business and transformed it into one of the best names in the industry. He has built partnerships with some of the most renowned names globally, such as Merrill Lynch and BlackRock.
Nilesh Shah, managing director at Kotak AMC, engaged him in a very thought-provoking discussion during the Morningstar Investment Conference. Below is an excerpt.
You started your career in a textile mill. What inspired the move into the stock market?
When I graduated, my father told me that there was no future here in the stock market. Mr. Piramal was a very good friend of mine. His father told me to join Morarjee Mills. I started from cotton mixing to cart clothing to spinning to weaving. In the afternoon I did store purchase. I got bored so. So I was asked to look at sales. Nine months later, the head of sales wanted to leave so I was offered his position. I was in my early 20s when I became the local head of sales. My day started early in the morning till late at night. That year, Morarjee Textile mill made the highest profit. I gained tremendous experience.
Then I thought with this experience I can do something in the stock market. My firm was there– though it had a great reputation and a great family name, it was like a dormant firm. Luckily, there were not too many competitors.
When I joined, there was a stock exchange strike called by the labour union. Stock brokers were on strike because forward trading was banned. Three months later banks were nationalized. In 1971, insurance companies were nationalized. In my life, I have even seen income tax levels of 97.5% and 5% wealth tax. I have seen also dividend freeze and wage freeze.
The decade of 70s – during which Emergency was declared, was a very tough one. But I prospered. Over that decade, I really got to know the few institutions that existed and the corporate clients. It was easy for me to reach because nobody was going. That was one aspect.
In 1976, I travelled to the U.S., Europe and Middle East to build relationships with banks and investment bankers. In the 80s, Germany’s Dresdner Bank and France’s BFCE (Banque Francaise du Commerce Exterieur) asked me to be their agent in India. Merrill Lynch was opening up its first investment banking in Asia and wanted to tie up with me. Later came Swiss Bank Corporation and IBJ (Industrial Bank of Japan).
You built successful partnerships with Merrill Lynch and BlackRock. What advice would you give self-employed entrepreneurs who want to build partnerships to create scale? What will be your advice to them so that they can build as successful a wealth management business as you and then they can sell it to someone like Merrill Lynch?
Like I mentioned, I was fortunate to work with four large institutions at the same time.
I decided that they are large institutions and we are much smaller, but we have the majority. Respect them as equal partners. And they must respect us as having integrity and honesty. There should not be any feeling of doubt, but total transparency. And they used to partner with us in each and every division. The counterpart of theirs helped us to grow in understanding the way the world was growing. For instance, when I started with Merrill Lynch, I began understanding their compliance aspect.
It was never the objective to sell the shares to create monetization. They were very keen because they want to take higher risks, which to some extent was not my desire. I don't take too much of high risks. So I agreed to sell them and the timing happened to be perfect. I did not want to sell the wealth management business. My daughters were not interested in investment banking, and I was around 58 years old. My daughter Aditi was keen on the fund management business.
Even with BlackRock. We have a partnership with all divisions of theirs. The chairman of BlackRock still receives me with so much of warmth and always shares a meal with me when we meet. He is responsible for $5 trillion!! That is the kind of relationship I share with him. So, it is the relationships we build.
We have confidence in each other. I have told everybody that we should not have differences. If one person says no, from either side, we won't do it. That's the kind of relationship we have built up to create confidence in each other.
You have straddled across stock broking, investment banking, wealth management and asset management. What is your advice to wealth managers in building a successful wealth management business and eventually sell it?
You don't do a business to create value to sell. The objective should be to create a great institution, whatever be the size. To get clients, you must build trust. You must act like his/her money is your money. Give the best possible honest advice rather than try to constantly see your bottom line. Employ the right people in your own firm.
Embrace technology. It is changing the field of wealth management. See how you can remain in touch with the market and at the same time give correct advice as per the requirement of that individual’s risk-taking ability.
Put an emphasis on research even if you can get it from outside.
Create a long-term thinking rather than short term. Advise your clients to think that way too.
You have been a factory of producing talent. How did you spot the talent and nurture it?
I'm very proud that my ex-colleagues have reached different places at very high posts. Some of them have become venture capitalists, others started their own investment banking or wealth management companies. Rajeev Gupta of Arpwood Capital was the investment banker for Essar and made numerous trips to Russia to close the deal for them. When Amit Chandra is MD of Bain Capital Private Equity.
To keep good people and nurture them, you must empower them. If you trust them – empower them.
I like keeping people who are smarter than me, rather than worrying about that they will learn and get out. Keep people who are smarter than you.