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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
A very good afternoon, ladies and gentlemen, and welcome to IIFL Wealth and Asset Management's Q1 FY '23 Earnings call. [Operator Instructions] Please note, this conference is being recorded.
On the call today, we have with us Mr. Karan Bhagat, the Managing Director and CEO; Mr. Anshuman Maheshwary, the Chief Operating Officer; Mr. Sanjay Wadhwa, the Chief Financial Officer; and Mr. Pavan Manghnani, Head Strategy and Investor Relations.
I now hand it over to Mr. Sanjay Wadhwa to take this conference forward. Thank you.
Thank you, Anil, and a very good afternoon to everyone on the call today. The financial markets have witnessed a bit of volatility and some minor corrections both on account of local and macro factors. These have impacted most businesses, be it on account of IIFL outflows, depreciating currencies and other factors. . Amidst all of that, we are happy to give an overview of the current quarter at IIFL Wealth and Asset Management. While our AUM is not entirely insulated on the mark-to-market fluctuations. However, our asset allocation framework strong net flows for the quarter and robust revenue streams have held us in good stead. Our continued focus on recurring revenues is paying off in volatile markets, as witnessed in the current quarter. With that background, as regards of our financials, we have seen growth across all key metrics in the form of AUMs, net flows, revenues, steady retentions and profitability. Happy to report we clocked our highest-ever [ OPBT ] in this quarter. Some specific financial numbers.
Starting with AUM, our total AUM is now more than INR 314,000 crores up 11% year-on-year, down 13% quarter-on-quarter. Excluding custody, our overall AUM increased 7% Y-o-Y but was down 3% Q-o-Q to INR 252,000 crores with wealth AUM at INR 199,000 crores and asset management AUM at INR 53,000 crores.
Importantly, our ERR assets remained flat Q-o-Q in spite of the MTM and were up 22% Y-o-Y to INR 143,000 crores. With this, the share of ARR assets in total AUM now stands at almost 57%. And as we continue our journey towards steadily increasing the pie of ARR assets.
Happy to share that despite the market conditions, our net flows have been relatively strong for the quarter. We clocked INR 6,078 crores of the INR 5,000 crores was in wealth and nearly INR 1,000-odd crores was in asset management. Our loan book also for the quarter was at INR 4,163 crores, marginally lower than the previous quarter.
Now coming to revenues and retentions. Our total revenues increased 21% Y-o-Y and were down 17% Q-o-Q to INR 369 crores as compared to Q1 FY '22, our revenue from operations was up 32% Y-o-Y but down 11% Q-o-Q to INR 375 crores. Importantly, our recurring revenues have increased 1% Q-o-Q and 33% Y-o-Y at INR 255 crores.
As a percentage of overall revenue, recurring revenues comprised 69% of the sale, a significant jump from 56% from the previous quarter, showcasing the importance of building a recurring revenue generating base of assets. Further, the growth in ARR revenue has come from both well as well as asset management businesses, both seeing a healthy uptick over the last quarter.
This quarter has seen lower transaction revenues at INR 119 crores, while it is still up 31% Y-o-Y, but it is down 30% quarter-on-quarter, primarily given its nature and the market conditions flows and demand for PBR assets have been in line with our expectation.
Our retentions across wealth and asset management segment holds steady with wealth management retention at 53 basis points and asset management retentions at 86 basis points. At an aggregate level, our overall retention now stand at 59 basis points.
Now coming to expenses. Our endeavor to consciously drive cost optimization is now reaping its rewards. For the quarter, our cost to income has dipped to 45% from the earlier 52%, which was in the previous quarter. This is primarily on account of 30% quarter-on-quarter reduction in employment costs, which was envisaged given the absorption of onetime variable employment cost impacts on account of transition, which we completed in FY '22. Our total expenses for the quarter was down 29% quarter-on-quarter and slightly up Y-o-Y by 9% at INR 168 crores.
Administrative and other expenses were down 24% quarter-on-quarter at INR 43 crores. Now coming to profitability. As stated earlier, we recorded our highest OPBT, tracking INR 207 crores, which was up 59% Y-o-Y and 10% quarter-on-quarter. Our quarterly PAT stood at INR 160 crores, an increase of 35% Y-o-Y, down 4% quarter-on-quarter.
Importantly, our tangible ROE, which is ROE, excluding goodwill and intangibles, has held steady at 26% for the quarter, which was 20% in June 2021. With that, we come to the end of the financial highlights, I'll now hand it over to Anshuman to cover the key business and strategic highlights. Thank you.
Thanks, Sanjay. A very good afternoon to everyone. The last few months have been interesting for us, both in terms of markets and business. I say interesting because despite macro volatility and global factors, we, at IIFL Wealth and Asset Management have not only been able to suitably withstand these uncertainties, these, in fact, have fortified our courts, laying further testimony to our pivotal philosophies of capital preservation, balanced asset allocation and building a recurring revenue base while maintaining a high degree of transparency with our clients.
With increasing interest rates and a conscious increase in appetite towards debt instruments, it allows us to reduce volatility in client portfolios and improve their experience with us. The ability of the client to appreciate a sound investment policy framework, especially comes out in these times. And we foresee our ability to continue to gain and consolidate market share, especially in such slightly challenging times.
Last quarter, I spoke about our 3 core tenets of our strategy: growth, resilience and agility. Taking a queue from them, allow me to share some key strategic updates for the last 90 days and in a way, what's shaping up the journey for the rest of the year. These 3 months, despite the market volatility, we were able to hold for on the wealth and asset management side.
A testimony to this has been our business metrics, which Sanjay has already spoken about. But I wanted to highlight 3 specific aspects. Firstly, reinforce our net flows that have held strong with more than INR 5,000 crores of net flows in wealth in the last quarter itself. This further reflects the strength of our robust governance and risk management approach.
It also showcases the strength of our relationships and the platform proposition. Net flows on asset management also held strong, given the uptick in our structured credit and multi-asset strategies, which balances against the lower traction on private equity in the current environment.
Secondly, the share of our ARR revenues to total revenues has grown steadily to almost 70% this quarter. We are already seeing the benefits of this pool of steady revenues in our current quarter results. It is allowing us to continue to invest on key strategic and growth areas, including technology, senior relationship managers and investment teams and key geographies.
Thirdly, as Sanjay highlighted, our cost-to-income, a metric that we monitor very closely now stands at 45%. This is in line with what we had communicated earlier as well. We believe that the employee costs are in the steady-state range of approximately 33% with administrative costs being another 12%. We expect to sustain these levels with a prudent cost discipline approach and further improve our select productivity and efficiency initiatives kick
in.
Some other key business updates, firstly is on dividend. As a firm, we continue to cohesively work towards improving capital efficiency and ROE numbers. This year, happy to report that our tangible ROE has already been -- is already at 26%, while the overall ROE remains at 21%. In line with the above, we are pleased to announce the second interim dividend of INR 15. This aligns with our dividend policy of 70% to 80% PAT payout to our shareholders. It also positions us fairly uniquely as a high growth as well as a high dividend-yielding company.
The second update is on Mumbai Angels. As you would have seen, we have entered into an agreement to acquire 91% of Mumbai Angels, a private investment platform for early-stage ventures. Mumbai Angels has been a pioneer in this space, and the acquisition aligns well with our overall platform offering, especially as we develop the mid-market segment proposition. The acquisition is at an enterprise value of INR 42 crores plus any cash and cash equivalents as on the closing date.
The third is, I wanted to update you on some of the organizational changes and key hires. Internally, we've had some rejigs in our role as well with Nikunj Kedia taking over as Products Head. He is now going to be responsible for all third-party fund management, due diligence and selection, covering mutual funds, PMS and AIF and also deal syndication and sourcing. In addition, there are some notable hires during the last few months.
We are very happy to welcome Anupama Sharma as a senior leader in the wealth management business. She comes in with over 20 years of work ex in the banking and wealth management space. Navin Upadhyaya joins us as our Chief Human Resources Officer, with over 2 decades of experience with domestic and international banks.
On the technology side, which, as we've emphasized in the last few quarters has been a significant focus area for us. We have Santoshi Kittur join us as our Chief Technology Officer. She comes in with over 25 years of experience, and will be responsible for visioning, formulating and implementing the technology and security strategies and ensuring that our firm's technology capabilities are in line with our growth and differentiation aspirations. We're excited to have them and others who have embarked on this journey with us.
With that, I would like to hand over to Karan and open the session for Q&A.
Thank you, Anshuman, and welcome Mr. Karan Bhagat., We'll now open the floor for questions. [Operator Instructions] First in line, we have Mr. Mohit Mangal.
Mohit Mangal from BOB Capital. So I've got 3 questions. Sir, first question is in terms of the net flows. So INR 6,000 crores was coven the wealth management was good. Anshuman stays that private equity was under pressure. But if I look at the discretionary PMS also, that flows were pretty low. So could you just elaborate why -- what happened during this quarter?
So I think overall flows discussion typically has a lag impact. But overall, from a flow perspective, I think what was positive and then I'll come to specifically answer your question. I think what is positive is in most of the new mandates and deals we were able to get significant amount of market share and pretty much in 8 or 9 out of the 10 mandates, which kind of happened through the quarter.
We were kind of the lead advisers. And therefore, the flow in net flows across wealth management has been substantially strong. In terms of the product side itself, I think the last quarter has been a little red on equities itself from a flow perspective. Clients have kind of looked at postponing a bit of their equity purchases for the last 3 months.
And therefore, the larger flows on the product side have been more driven towards the credit strategies, which doesn't necessarily form a very large part of the discretionary mandates, but essentially expresses itself through the credit strategy in the AIF. But as time goes by a part of this INR 6,000 crores or rather part of the INR 4,800 crores on the wealth management side will gradually also move towards discretionary.
So I think from a discretionary flow perspective, I think we will catch up through the rest of the year, and it will kind of play its own part. Obviously, it will be a mix between discretionary and nondiscretionary. But we will see some movement there.
Okay. And just a follow-up, that the net flows guidance of INR 37,500 crores still holds true, right, for the entire year.
I think it holds true. I think, obviously, it's all guidance is, obviously, to a certain small extent, are dependent on markets a bit. But I think just given the way the consolidation is happening in the industry, I think we're competitively extremely well positioned to hold that guidance of INR 35,000 crore, INR 37,000 crores, INR 40,000 crores for the -- obviously, the market is both for a very, very deep purple patch, the numbers might be a little here and there. But outside of that on a steady-state basis, I think the INR 35,000 crore to INR 40,000 crore guidance for this.
Understood. Sir, second question is on the acquisition. So I mean, to acquire something with a turnover of just INR 10 crores, is it too small for IIFL Wealth to acquire a company like that?
That's more of a platform. So effectively, it's the old platform 7 to 8 years. It has around about 1,000 to 1,500 active clients on the platform. So it's really about what we can do with the platform rather than what it represents currently. So in some senses, it's a segue into our CAT 1 journey, which effectively is really a journey which is associated with slightly earlier stage investments and requires us to maybe also use it as a platform to help syndicate some deals out to our clients.
We've not really been doing the CAT 1 journey for the last 7 to 8 years and more focused on the fund management or the Category 2 side. As we build out our own experiences on the mid-market side over the next 12 months, I think this platform will be a very important platform for us to be able to engage with our clients on this side of the private equity story.
So I think it's more a platform. Obviously, from a revenue perspective, it's only INR 9.5 crores, INR 10 crores currently. And from a profitability perspective, is around about 2.5 -- actually INR 3.1 crores profit. So from a -- it's too small right now to really look at PE and price to revenue and so on and so forth. But as such, it's doing around about INR 3 crores of profit and INR 10 crores of revenue. It's really going to be about what we can do with the platform rather than what currently is there in the platform in that sense.
Okay. Perfect. So my last question is towards you have been speaking about this INR 5 crores to INR 15 crore category and INR 10 crores to INR 25 crores, which you intend to start, say, towards the end of the year. So I just want elaboration on 2 aspects. The first is that which states or geographies you intend to go into for this segment?
And secondly, so your initial analysis of how this segment would be beneficial for the company, whether it would be on our distribution income or a manufacturing income or it would be just a plain brokerage income, so if you can just more specify into this?
Well, Mohit, we're obviously in slightly earlier stages of ideation on that, but I think that my -- I can give you my earlier hypothesis on that business. I think from a geographical perspective, I think we are today in 14, 15 geographies, I think we would naturally want to be in another 7, 8 geographies even without getting into the mid-market segment.
So I think the entire ultra-high net worth segment itself requires some bit of geographical expansion of 7 to 8 cities within India and potentially also maybe expand out a little bit to Dubai and Singapore from an NRI markets perspective. So that's something which we're going to look at in either case, even on the ultra-high network side.
On the mid-market side, I think the INR 5 crore to INR 20 crore or the INR 10 crore to INR 25 crore journey as we kind of build it out. I think initially, in the initial days, it's going to be more a distribution platform as opposed to brokerage platform. We don't really see ourselves being another broker, but we see ourselves being a very, very innovative and smart distributor in some senses.
So our initial hypothesis for the INR 10 crore to INR 25 crore client will be obviously a light financial planning, light asset allocation, investment policy statement and a guided distribution. So I think that's going to be the initial hypothesis to get in.
Obviously, to get that platform to work, you need a lot of things to come together, right? So initially, just a few things. For example, the Mumbai Angel's thing, the ESOP funding, a good, good network of innovative products and ideas. You need at least 10 or 12 platform-associated things to come in for us to have a platform which is strong enough to attract clients.
Pretty much like our Ultra high network business, you need all 3 things to come and platform products and people. I think even in that business, we'll need to kind of get all those 3 things in. And over the next 9 to 12 months, as we discover our own -- the right strategy to get into the business. We'll also keep going along in building the right components of the platform so that the clients are well serviced. And most importantly, we are able to attract clients to that platform.
Next in line, we have Mr. Aejas Lakhani.
This is Aejas here from Unifi Capital. Karan, 3 questions. First is, could you expand thoughts on capital allocation more from a dividend versus a buyback perspective?
So I think just to be honest, both are kind of fairly similar. Buyback, obviously, as a tax of 24, dividends as a tax of 25. But a large part of the shareholding, obviously, for a lot of us is institutional in nature, which is essentially driven by mutual funds and foreign institutions who are more or less indifferent to a buyback stroke dividend.
So I think from a -- just from an ability to kind of predict it, naturally, we prefer the dividend true very effectively. We will be looking at subject to everything else, 70% to 80%, 85% of our profits every quarter being paid out as dividends. So that's really the thought process.
It is a little more tax onerous for the domestic resident shareholders, including the promoters. But that's a gap between [ 23 ], [ 24 ] versus [ 34], [ 35 ]. So effectively, in some senses, we believe we would like to follow a stable dividend policy. If at all, we have an opportunity to do a buyback at the right time, we look at it more sporadically. But I think from a consistent ongoing basis, dividend is the way to go for us.
No, that's fair. And I just sort of articulate where this thought came from. So if you look at the kind of dividend yield you have, coupled with the kind of growth you're [indiscernible], it's it doesn't make a lot of sense because a lot of high dividend companies don't pay in companies do not have the kind of growth levers and earnings momentum that you have it was more contextual to sort of look at it in that sense. I hope you ...
I got it. I got it. But to be fair, yes, so I hear you, is, but -- my only thought process there was we are unlikely to need large amounts of capital for our growth. So in that sense, I guess, if that was the if that's the -- if ever we feel that's the requirement, you may relook at the thought process there. But I think the 10% to 15% to 20% of profits, which we're kind of retaining are more than sufficient for our growth prospects in that sense.
That's fair. The next one is, could you speak about how investments in tech will drive business outcomes?
So I think it's a great question. And I think from an answer perspective, has really kind of broken up into 3 parts of the business we are in, right, 2 parts of the business we're already and then maybe the third one which we're working on.
I think on the ultrahigh network side, the client behavior has changed to the extent of saying that they do want to transact necessarily online. So there's hardly any client will go out and buy INR 5 crores, INR 10 crores, INR 15 crores, INR 20 crores in a product. online, that's unlikely to happen, not only in India, but even globally.
But what has happened is the expectation of the client is changing radically. So he is expecting the firm to be fully technology enabled. Now what I mean in that is he expects the RM to have a lot more information because the RM should be equipped with a lot of more data and analysis, which is available to the RM.
The clients expecting much more faster response times. Our ability to access document repositories without really calling ability to kind of see a lot more data analysis on his own portfolio, a lot of what-if analysis on this portfolio. So the expectation of the client is substantially changing, thanks to technology.
The execution of the transaction is unlikely to change on the ultrahigh network side. On the asset management side, largely on the alternate business, I think it's become a very critical part of all our, let's say, our diligence exercises, our ability to capture our meetings with our investors, with the companies we meet our ability to capture information are actually peculated in leading to more defined decision-making, which is more consistent in the long term is largely being enabled by technology.
On the internal side, obviously, it helps us in a lot of ways, right? So it gives us signals in terms of which clients can we potentially lose, which clients have been inactive for the last 12, 18, 24 months. So there's a lot of impact on -- from a technology perspective on the analytics side. What we haven't done too well as a firm and technology gives us a chance to do that is improve the profiling of our clients.
So that's something which we are really working hard on internally and that we believe in the longer term, medium to long term will definitely help us improve our wallet share. On the mid-market side, as and when we get there, I think their technology will be more of -- not only an enabler but also maybe a key to the business.
In our alternate asset management business in client asset business, I think it's a very high enabler, but it's not the business itself. I think in the mid-market side, it will have a higher component of involvement because it will enable us to increase the span of control.
And therefore, it has a very, very kind of tangible and direct impact on the cost-to-income ratio. So I think from a technology perspective, I think we'll have to look at all of these 3 businesses with that lens and ensure that we are able to kind of meet the -- not only meet, but also potentially beat the relevant benchmarks required.
That's very helpful. And one last one is that you mentioned in your opening comment about consolidation. So should we expect more smaller tuck-in acquisitions like you've made?
Not really nothing on the horizon, but if something interesting comes up, we are always open. But it really has to add to the platform. It should be something which we're not able to immediately build out. It should add something. It should add something very material.
But otherwise, really honestly, acquisition is not the way to go for us. We would prefer to kind of build out our ability to reach out to our clients is fairly high. So we would ideally as first choice, want to kind of do things in-house rather than kind of go and acquire. But at the same point of time, we are not like absolutely against rate here.
[Operator Instructions] Next in line, we have Mr. Nihar Shah.
Karan, I hope everyone is doing well. Just a couple of questions from my side. If I take a look at the variable employee expenses, they are down quite substantially. Well, I understand on a Q-on-Q basis, you had mentioned that there were some one-offs last year because of the high transaction income.
But even on a year-on-year basis, it's lower compared to the net revenues that you had. Just wanted to understand, is this the new normal going forward when you think about how you compensate employee base on a variable basis? And maybe just related to that is given that you have changed the -- you sort of normalize the employee compensation starting this year, how is attrition within relationship managers trending for you guys?
No, I think -- thanks, Nihar, for both the questions. So I think broadly speaking, I think fix plus variable will be in the region of 32% to 34% of the revenues, of the net revenue. So that's broadly the benchmark at which it will move. So obviously, from a revenue -- from a variable bonus provision perspective, it's pretty much kind of the way we do it as we're calculating it for the full year.
And therefore, around that, we are effectively doing it proportionately. So to answer your question, yes, it's more or less in line with the new normal. It effectively is going to represent at all points in time, 32% to 34% of our revenues as total compensation. So effectively, if you see the variable, it will broadly be the difference between 32% to 34% less the fixed cost for the quarter.
From a perspective of retention, I think we pretty much believe we are at the 94th, 95th percentile in terms of the -- in terms of our relationship managers payouts, including fixed and variable. We've done a fairly large restructuring of the fixed payouts across the firm last year, which you would see has resulted in our fixed compensation move up from INR 77 crores, INR 78 crores in the quarter to nearly INR 84-odd crores, INR 84 crores, INR 85 crores for the current quarter.
So that's a fairly healthy adjustment we've made on the fixed compensation side. On the variable, I think it will be in that region to kind of account for the 33%, 34%. Attrition on the relationship manager side, unfortunately, for us has been fairly low. At what we call is the principal and the partner level, I think attrition is less than 1.5%, 2%. Maybe Pavan can give the exact number, but it will be sub 2% for sure at the principal and above level.
[Operator Instructions]
I think Sanjay has a question.
Sanjay, kindly unmute yourself and ask your question.
This is Sanjay from ithoughtPMS. So Karan, Anshuman spoke about increasing debt appetite in customers. So -- and another listed peer is seeing good demand in MLDs and their yields are at too good, 1.5%. So I just wanted to get your thoughts on MLDs. Are we selling them to clients as what are the risks involved?
So I'm not quite sure of those MLDs, Sanjay, I'm not really looked at it. So honestly, I'm not able to kind of quickly comment on those MLDs. But for the MLDs, we raised from our clients for the IIFL Wealth MLDs itself, it's really a transaction which is within -- with us, our aside.
So really, there's no income being booked on account of us being -- raising any MLD. It really doesn't form a part of our revenue line at all because it kind of gets consolidated within the entities itself and therefore, it gets set off. From a normal MLDs, if you're raising MLDs for third-party and let's say, people like hypothetically like, let's say, any of the NBFCs, let's say, AA+ to AAA NBFCs.
Brokerages typically tend to be in the region of 25 to 30 basis points per annum. So effectively, if you're doing, let's say, INR 500-odd crores, you would get debt brokers of approximately INR 1 crores to INR 1.5 crores. So for us, it's not really a very large portion of our revenues.
It typically tends to be more or less give or take, equal to our equity brokerage number every month. So effectively, it's in the region of around about INR 2.5 crores, INR 3 crores a month.
Right. And so we buy it from the subsidiary and then mark down the yields and then further sell it to plans or how does ...
We don't buy it from the subsidiary at all. We just issued from the subsidiary. There's no revenue happening because of any MLD issuance by our NBFC.
Got it. Second one, so we've reached the bottom for our employee cost. Any lever in terms of the other -- or the nonemployee expenses, can it come down from 12%, say, to 10%?
No. So as I said earlier, I think for the current year, I think 44%, 45%. 44% to 46% will be the region. I don't ...
No medium term.
Yes. I think long term, there is potential for it to come down by 3% to 4%, but that's not -- it's not going to be an account of reduction of employee costs or something like that. I think it's going to be a function more of maybe better productivity, better span of control and more efficiency costs, which are not directly proportional to increase in revenue.
So I think the extra 3%, 4%, we have to really work hard on. I think they are more related to productivity and span of control. We know where it can come down from. But those are none of the issues that those are -- which can be kind of do very, very easily in the immediate term.
But I think in steady state without impacting the delicate relationship between clients, employees and shareholders. I think there is a potential to kind of get down the cost to incur by 2% to 3%.
Right. So all the low-hanging fruits are done with?
No. I think on the admin expenses as well as on the productivity side, I wouldn't say they are not low any fuss there are low hanging fruits. But the implementation of that would take some time. And I'm saying they're identified, there are I know what is to be done, but the time would be somewhere between the 12th to the 18th month. Yes. So if you're saying low-hanging fruits from a time perspective, I would say, yes, we are done with.
Right. All right. And finally, so you did answer the question on flows. Will it be difficult to hit a run rate of say, INR 10,000 crore, INR 12,000 crores. So just to meet our guidance because we have done only INR 6,000, crores, we need INR 30,000 crores more for the rest of the year in 3 quarters.
Flows can be a little episodical, okay, both ways. So it's possible you at INR 15,000, crores, INR 16,000 crores of flows in the quarter. It is possible you end up at INR 3,500 crores, INR 4,000 crores of flows in a quarter. Really difficult to plan for flows on a quarterly basis, and I said that before also. But you will have 1 or 2 quarters where you do extremely well.
You'll have a couple of quarters where the flows are a little muted. But yes, if the markets remain absolutely subdued for the full year, it is potentially possible that the guided flow number kind of comes off a bit. Obviously, the flow -- the guided flow number has -- doesn't have a massive impact on the current year's P&L because it's kind of incrementally adding to the P&L also in a limited way, but it can have a consequential kind of a bit of an impact on the next year's P&L.
So we'll have to kind of -- I personally feel right now, I think the mix might change a bit, but I feel comfortable around the INR 35,000 crore, INR 40,000 crore number. But obviously, if markets remain very, very subdued, then you can potentially miss that number.
Got it. Any specific segments that could give you that INR 15,000 crores in a particular quarter or where you're seeing traction?
I think, for example, last quarter, obviously, you've seen a lot of traction on the fixed income side, right? So I think in that sense, we are blessed to be able to navigate between fixed income and equity equally easily. And given the way we do it, there is -- it's not as if our retentions between either on equity or phenomenally high or on fixed income are phenomenally low, right?
So we are able to kind of manage the retention and successfully navigate between the asset classes. So I think my personal view is unless the equity markets fall by another 10%, 15% plus or minus because it's a plus because a lot of clients will come in with a lot of new equity flows.
It's a minor because obviously it impacts your overall AUM from a mark-to-market perspective. But unless I think that happens, I think clients are going to remain a little, little on the sidelines. And they are unlikely to put in huge amounts of money into equities, just given the entire macro situation globally. So through that period of time, I think the ability to do a lot of innovative fixed income is going to be important.
Okay. Just a last one if I can ask. The breakup of the INR 6,000 crores in terms of existing clients and new clients if that's possible?
I don't have the number immediately. Pavan, would you be able to maybe after 5-7 minutes just get back on the number.
[Operator Instructions] Next in line, we have ...
Sanjay, it will be broadly -- I think I'm just doing some guesswork come back, but I think it will be in the ratio of 70%, 30%, approximately, maybe 75%, 25%. 75% from new clients and 25% from existing clients. But I'll let Pavan come back with the exact number.
Thank you, Karan. Next in line, we have Mr. [ Nimesh Maheshwari ].
Nimesh from IHS. 2 questions.
Nimesh, there's a lot of disturbance in the background. If you could just move to a quieter place and ask your question.
Sir, what is the traction in brokerage income you are looking in the upcoming quarters? And IIFL One revenues flat during the quarter. So how are you looking at those?
Can you repeat your first question, Nimesh?
What is the traction in brokerage income you are looking in the upcoming quarters?
Okay. So I think brokerage income, there is a certain minimum, and obviously, it can kind of get elevated massively if the capital markets are supportive. So brokerage income to a certain extent, brokerage transaction income remained a little bit in some senses, depending on the where the capital markets are.
But overall, I think just given the fact that we get it from many sources, including fixed income, equity, there's a certain minimum, which is already kind of always kind of constant. And historically, we've seen that number somewhere in the region of INR 55 crores, INR 60-odd crores, INR 65 crores in a quarter, 100% kind of comes in as brokerage and transaction income.
Obviously, it can -- like we saw in quarter 4 also move up in an elevated fashion in case capital markets are very active. But I think on a sustainable basis, we believe what we put it out as a guidance is something which we feel will kind of come through for sure. So the number around the INR 75 crores, INR 80 crores, INR 85 crores a quarter is something which we feel very, very comfortable about from a transaction income perspective.
From a perspective on income on IIFL One, again, I think we've had good flows, but largely, it's a function of a little bit of the mark-to-market. I think a largish impact from a pure Q-on-Q basis is largely on account of the mark-to-market, which is in the region of, I think, if I'm not wrong, 8% to 11% on actual one. But no big changes in assumptions on yields and so on and so forth there.
Next in line, we have Hiten Jain.
This is Hiten Jain from Invesco. So I just wanted to understand MLDs better. Is it that you guys don't have focus on MDs?
Hiten, I actually honestly don't understand how those MLDs work, but I'm not sure how you book revenue on it. So I'm not quite -- I'm not sure if I can ...
Yes. So it's market-linked debentures and essentially, you sell this to your clients. So some NBFC issue that and then you sell it to your clients and you get a distribution fee on that. Most of the time it's upfront.
So as I said earlier, it's 25 to 30 basis points per year. So if you do a 3-year MLD, it will be 80 to 90 basis points. That's about it.
Yes. No, I'm saying in terms of your product lines, in terms of your mix. Is it that...
We do that. We do a lot of MLDs. But as I said, it's aggregates to not more than INR 2.5 crores to INR 3 crores a month.
So do you mean that it's a small market, and there is only that much that you can do? Or -- so is it a problem on the supply side or on the demand side?
No. So we are more or less concentrated on MLDs on AA+ and above or in fact, nearly on AA+ to AAA. We really don't go into the AA- market too much or even the A- or the A+ market. And I think the flows there can be with a slightly higher brokerage income.
On the AA+ to AAA, the brokerage would average out to 25 to 30 basis. In fact, on the AAA side, it would be substantially lower, it will be 5 to 10 basis points. So we've been a little cautious on the MLDs. We really don't want to kind of go out to clients with A+, A-. We would prefer for them to come into a pool of investments either through a structured credit fund or through a mutual fund or through a PMS, where instead of getting exposure to a single credit of A+ or A- they are able to get into a diversified pool of 15 to 20 instruments.
Got that. And do you sell only of the sister concern? Or is there select NBFCs offering or the -- I mean, who are your suppliers in that sense? Is it the only sister concern, IIFL NBFC or someone else as well?
No, there's nothing like that. So IIFL Wealth, if you mean IIFL Wealth NBFC, that's like raising paper for our own entity from our own clients. In that, there is obviously no brokerage because we are raising money for our own entity. Outside of IIFL Wealth, we raised money for select NBFCs, which are AA+ to AAA.
There is no specific entities as such. Our largest amount of our allocations would go to people Like L&T, HDFC, Kotak Prime and so on and so forth. Those are the larger NBFCs for whom we will be raising MLDs.
[Operator Instructions] Next in line, we have Dipanjan Ghosh.
Am I audible?
Yes.
Just 2, 3 questions on my side. First, if you can give some color on how the pipeline looks like in the institutional flows on the AMC business? Second, let's say, hypothetically, if markets start to remain weak for, let's say, a period of time, 3, 4, 5 quarters. And AUM growth becomes to some extent, linked to new customer acquisitions, geographic expansion, some of the points that we have been discussing.
In that context, how do you see the people cost or the manpower costs really shaping up in case client acquisition becomes a pool for AM growth for some quarter? And third, I think more from a yield perspective, we kind of used to discuss that if markets are weak, and you acquired some, let's say smaller segment or smaller ticket size plant probably yield tends to be a bit favorable in a weak market sentiment and clients are trying to move more towards advisory part of business plan rather than a POC, brokerage or syndication sort of activity. In that context, how will you see the deal on the PMS business segment? So these are the 3 questions.
Got it. Yes. So Dipanjan, I think from a market perspective, I think the -- from RM cost structure, obviously, there are 2 parts, right? So there's a fixed portion and there's a variable portion. So I don't think so the fixed portion really changes or as a quick function of the kind of flows and the kind of new clients we acquire. I think that's more or less going to be there.
I think there is some flexibility, which kind of builds in on the variable side. But as I said earlier, I think if net flows were to subside in a very, very large way, the impact on the current year's financials to a certain extent and the next year's financials to a certain extent. In both ways, if you get higher flows than what you are targeting, it also doesn't necessarily help you in a big way in the current year.
And similarly, if you don't get to that number, it doesn't kind of hurt you very, very largely in the same year. So I think from a revenue and a profit and a RM compensation perspective, net flows will -- for the current year, won't have a direct correlation to that extent, but it will have an impact. So I think from a revenue and a cost perspective this year, it will be to a certain extent, is dependent on net flows.
To a certain extent, it's dependent on the AUM and the flows we've already achieved last year. Coming to the point of the institution mandates itself, I think from the team is working very, very closely from a capacity perspective. So we've already got 4 large mandates. I think we would look at adding a couple of mandates over the next 12-odd months. But we would be very cautious on not building up too many mandates on the institutional side.
I think we will see some more traction happening on the family office and the ultra-HNI space on the listed equity side, especially in the form of PMS's and AM's. I think the larger collection over the next 12 months would be happening from those channels as opposed to necessarily from the institutional mandates.
And third, maybe on the yield question, I mean, how do you see the yield on the IIFL One platform shaping up in the current environment?
So I think the yield is -- from a yield perspective, I think it's pretty much similar. There's no real change there. I think nondiscretionary will be in the region of 35 to 40 basis points, 30 to 40 basis points. Discretionary region of 60 to 70 basis points. So all things being equal. And the equated size of the clients being between INR 25 crores to INR 100 crores and not only INR 250 crores plus will allow us to reach the blended yield of 45 to 50 basis points.
So I think the 2 determinants of yield will be distributed between discretionary and nondiscretionary. And secondly, and advisory and second will be the size of the clients. I think if these 2 are well managed, I don't see any reason for the years to be below the 45, 50 basis points number.
Sir, just one follow-up on the first question. What I'm getting to is more from the perspective that in case you need to add more RMs or do you have -- what is the current RM capacity in terms of new client additions that they can have kind of tackle or new flows from new clients that...
I think we have a lot of capacity to add honestly, Dipanjan. I think as I said earlier, I think we could do a little better on productivity also. Starting we have some great relationship managers and a lot of new -- a lot of relationship managers have been in the system for the last 6, 7, 8 years, will now shaped up to become -- I'm calling very loosely team leaders, right, who themselves can today nurture new talent.
So in some ways, from a span of control perspective, we have the ability to maybe add at least 30%, 40% to our client base without necessarily needing to add a whole new set of relationship managers. And therefore, in some senses, it comes back to that cost-to-income question. The real change there on cost to income really is a function of productivity.
So I think there's some -- so there is the span of control, which can be improved in productivity, therefore, can be improved. And in some senses, obviously, it doesn't mean we don't add new RMs. Wherever we find good talent and people who can add to the -- add to our client base as well as to a bench strength, we'll be happy to add. But at the same point of time, can we grow with our existing set of RMs. The answer is yes.
Next in line, we have [ Bhuvnesh Garg ].
Sir, I just want to know about the benchmarking of your advisory performance, like how do you benchmark your advisory performance in the sense that when do you communicate to clients and on what parameters you communicate that whether you have -- how much you have underperformed -- outperformed and I mean and how does -- how do your clients evaluate your perform -- advisory performance and support on key parameters?
So I think the performance from a nondiscretionary and advisory perspective, both is really kind of benchmark to, in some ways, a synthetic index because each client is a separate investment portfolio statement, and therefore, a separate asset allocation guideline.
But typically, what we try and do is in all our reports is effectively show 5 kinds of potential benchmarks. One benchmark that we would have 100% being in debt, the other benchmark because if you would have been 100% in let's say, the equity index, third benchmark, let's say, if you would have taken a balanced approach of 50-50,
Fourth benchmark is what he's guided in his investment portfolio statement, let's say, is guided 75%, 25%. And how is you doing relative to that benchmark effectively, all our portfolio statements carry his performance relative to all these potential benchmarks and effectively empowers the relationship manager to have continuous discussion with the client on various scenarios in the sense, how is it doing in its existing benchmark relative to the indices, how we could be potentially doing in case you have made separate asset allocation choices.
Next in line, we have Aejas Lakhani back with the question. Aejas, kindly unmute yourself and ask your question.
Karan, just a quick check on the assets where we've already booked revenues of those INR 15,000 crores, INR 16,000 crores, how much would mature in '23?
'22, '23, I think it's nearly 40% of that, yes.
Okay. 40%. Okay.
Is the second half of the year.
Okay. Okay. And the other bit is in the asset management this time around, we saw a new entrant in the form of the customized multi-asset class. If you could speak a little bit on that and the run rate going into the closing AUM was close to INR 350 crores. So a little bit on that. And what kind of launches should we expect from the asset management side in '23? And if you could call it out with the time line, a broad time line?
So I think the multi-asset, it's a fairly interesting strategy. It allows us to kind of, in some senses, build out slightly more -- slightly more bespoke strategies for large clients where you're able to kind of navigate between fixed income and equity, with some bit of ease.
Having said that, obviously, these are strategies which are fairly bespoke and need to be customized and therefore, can be run only for fairly large-ish amounts. So I think from an initial thought process perspective, we would like to keep the minimums around the INR 7,500 crore kind of number per family. And maybe start off in this year with maybe 15 to 20 odd families in the current year from a commitment perspective.
So what you see, obviously, there is INR 350 crores or INR 400 crores of drawdown. So the commitment would be closer to the INR 650 crores, INR 700 crores or INR 750 crore number. I think by the end of the year, we will have around about 15 to 20 families who are kind of doing multi-asset bespoke strategies with us.
So from a timing perspective, I think through the year, we expect to get INR 2,000, INR 2,500 crores, INR 3,000 crores of commitments there and maybe INR 1,000 crores to INR 1,500 crores of maybe potential drawdowns because the AUM effectively reflects only the drawdown as opposed to the committed amount.
Fair enough. And could you speak about what can we expect from the AMC side in the year?
So I think from the AMC side, I think from a launches perspective, I think I'll talk about what is more or less on the horizon now rather than going into what is there in Q3, Q4 in that sense. But on the Q2 side, immediately, I think it's -- the focus continues to be on the fixed income side.
So we are currently already in the process of raising structured credit fund, which is targeted towards the 11% to 14% kind of yield. It's our fourth fund in this strategy. All the first 3 funds have done fairly well. The first one was returned at a gross return of around about 15.8% to clients. I think the funds in pool collected close to around about $100-odd million and will be on its way to run about $150 million before we close.
Outside of that, we are also looking at a fund which is kind of slightly more focused on REITs and in bids. So effectively something which is providing a bit of strength, a little bit of capital appreciation. So we've done a couple of transactions there, some of which are in the public domain. And those will really kind of fit into and become a part of the fund as we go along.
[Operator Instructions]
Just a quick update on that net flows question. Of the INR 5,000-odd crores of net flows in the wealth management business, quarter 1, the split is 60-40 between existing and new clients. On an average in the year ago, it's closer to probably 70, 30 like current site, but every quarter, you have some dispersion in this ratio. Right now, it's 60-40.
Thank you, Pavan, for the update. [Operator Instructions]
Great. Thank you. Thanks, everybody, for joining us on the call, and we'll see you again after 3 months. Thank you.