What is the history of Edelweiss?
We started in 1996 with the aspiration to participate in the rapidly growing financial services and capital market sector. As India entered the new era of economic liberalisation, there were many opportunities for new entrants, especially in the countryÆs growing capital markets. With the economy opening up, there was a change in entrepreneurial orientation and our hypothesis has been that the capital markets will play a larger role in channeling capital and allocating funds for deserving entrepreneurs. Over the last 10 years we have grown from three people to currently 800 people.
What is your core strength?
Briefly, two things: innovation and an ownership-driven organisation.
We are constantly innovating, scouting out opportunities and newer solutions for our clients. As the business has moved beyond simple plain vanilla solutions and traditional products, keeping up with changing market needs is paramount.
Secondly, we are a young organisation with a high degree of internal ownership, which allows us to seamlessly deliver products and solutions to our clients.
Through this approach we have developed a competitive edge in various products such as equity derivatives, arbitrage, alternative asset management, structured finance, wealth management products and real estate advisory. Broadly, we have established leadership in the newly emerging alternative asset classes - in both agency and principal businesses. Our strength is a deep understanding of business opportunities in alternatives space in India.
What are your competitive advantages in, what is increasingly an over-brokered market?
In our view, the market is - ironically û over-brokered and under-brokered at the same time. This paradox exists because the market has exploded with many investors and issuers accessing the capital markets, which has led to market segmentation. In some segments û like traditional products - the market is over brokered.
In emerging areas, there is demand for advice, solutions and products which require innovation and creativity. There is less competition and in a sense your only competition is your ability to execute.
To illustrate, in the institutional broking business, the number of investors has grown from 200 to 2,000 and the companies that you can research from 150 to 1,000. There is so much to be done. Yes, there is competition; but mainly in the top 100 companies. India has a large base of companies (the second largest entrepreneurial base after US) who constantly need advice and capital.
Who are your target clients?
High-growth companies, institutional investors and high-net-worth investors. IndiaÆs high growth companies encompass the entire market cap spectrum - growth is widespread and not restricted to the mid market segment. We also work with all leading institutional investors. To our high net worth investors we offer our wealth management and private banking services.
What is your equity holding structure?
About 65% of the equity is internally held - by founders, management and employees. We have one of the most widely distributed ESOP programmes in the financial services industry. Almost 30% of our employees have ownership interest in the company. The balance 35% is held by institutional private equity investors.
Which institutional investors own shares?
The institutional investors in Edelweiss are Government of Singapore Investment Corporation (GIC Singapore), Galleon Group, USA, Greater Pacific Capital, UK, Shuaa Capital, Dubai, Spectrum Fund Management (the family office of Thomas Schmidheiny - the founder of Holcim Cement) and Americorp. In a sense, we have a truly global set of institutional investors with an independent board of directors.
How do you retain talent in IndiaÆs very competitive job market?
We offer three key differentiators for our people - growth opportunities within an entrepreneurial set up, lots of formal and on the job training and wealth creation through equity ownership in the company. We have grown at more than 100% for the past five years and this throws up many growth opportunities within the organization. Also we have a broad based business model which creates constant leadership opportunities for our people.
We also invest in training as currently in India, there is large talent pool, but due to the rapid growth of the financial services industry, trained and experienced people are hard to find. We overcome this by constant investment in training across levels. Our senior management team is personally involved in training programmes.
Our ESOP programme has been a cornerstone for sharing ownership and wealth creation. Most of our employees have an entrepreneurial bend of mind û we hire with this in mind.
What future do you see for boutique firms in a country where every large investment bank is creating a foothold?
The marketplace will be divided into two kinds of firms û monoline/boutique firms and multi-line broad-based firms. There will be a number of Indian multi-line and broad-based firms.
We are a broad-based company with 800 people and seven lines of business. Monoline firms will have strength of focus and lean teams, they will be specialists in one or two lines of business e.g. corporate finance or brokerage or asset management. They will not need to be capitalised heavily.
Broad-based firms will need larger management teams, significant investments in research, and scale up support functions such as compliance, technology, human resources and operations.
We envisage both local and international companies of each type. Some large foreign banks will have mono-line operations in India - as building a large team in India will reduce their flexibility and eat up management bandwidth.
You have chosen to operate without an international tie-up?
An international tie-up brings opportunities as well as issues. The advantage of not having one is that you are free to work with all firms. We have collaborated with many large firms on deals; we become the main source of origination for their proprietary books. Not having a tie-up also allows us to be more innovative and flexible across the board - origination, research, products and even human resource retention policies. Ultimately, the larger competition is about organizations innovating and attracting and retaining talent.
A foreign tie-up has benefits - capital, international origination and distribution - but has many downsides. This could be the reason most foreign tie-ups in India break-up.
Secondly, India has a large entrepreneurial base. There are more than 1000 companies which require investment banking services - and many more are entering the capital markets each year. No foreign brokerage house has the origination capability and capacity to cover these. Local houses are needed for this.
Finally, many large asset managers - institutional investors, private equity funds and hedge funds - are globally very important clients for international banks. Hence, they do not allow their Indian operations to connect directly with these important clients. As an Indian firm we are free to do deals with all funds and do not need any permission or approval. This can be a significant advantage for closing deals.
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