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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 Q2 FY '23 Earnings Call. [Operator Instructions] Please note that this conference is being recorded. On the call today, we have with us Mr. Karan Bhagat, Managing Director and CEO, Mr. Yatin Shah, Co-Founder of IIFL Wealth and Asset Management and Joint CEO Wealth; Mr. Anirudha Taparia, Co-Founder and Joint CEO Wealth; Mr. Anshuman Maheshwary, Chief Operating Officer; and Mr. Sanjay Wadhwa, Chief Financial Officer. To walk us through the numbers, I invite Sanjay to please take this forward.
Thank you, Anil, and a very good afternoon to everyone on the call today. The financial markets during the quarter ended in the positive territory. However, staying with elevated volatility as domestic flows competed and countered net outflows from FII. The macro factors remained relatively resilient amidst weakening global environment with performance parameters indicating recovery in domestic activity and INR holding up relatively well in the environment of freefall of currencies. With that said, the sentiment continues to remain cautious on the back of headwinds from extended geopolitical tensions and tightening global financial condition. Amidst all of that, we are happy to give an overview of the current quarter of IIFL Wealth and Asset Management's diversified portfolio mix, healthy net flow for the quarter and continued focus on revenue recurring stream have held us in good stead. From that aspect, jumping on to our financials, we have seen growth across all our key metrics in the form of AUM, net flows, revenue, credit retentions and profitability. Happy to report, we clocked our highest ever PAT in this quarter, which is Q2 FY '23. Some specific financial numbers, starting with assets under management, our total AUM is now more than INR 333,000 crores, up 5.8% year-on-year and up 6% quarter-on-quarter.
Excluding custody, our overall AUM increased 5% Y-o-Y and 6% quarter-on-quarter to INR 268,000 crores with wealth management AUM of INR 212,000 crores and asset management AUM at INR 56,000 crores. Importantly, our ARR assets improved 8% Q-o-Q and 17% Y-o-Y to INR 155,000 crores. With this, the share of ARR assets in total AUM now stands at 58% as we continue our journey towards steadily including the pie of the ARR assets. Happy to share that despite the market volatility, our net growth has been relatively strong for the quarter at INR 6,104 crores. Our loan book for the quarter was at INR 4,284 crores, marginally up by 3%. Revenues and retentions. Our total revenue increased 12% Y-o-Y and 10% Q-o-Q at INR 405 crores.
As compared to Q2 FY '22, our revenues from operations was up 22% Y-o-Y and 2% Q-o-Q at INR 382 crores. Importantly, our recurring revenues have increased 5% Q-o-Q and 17% Y-o-Y at INR 261 crores. As a percentage of operating revenue, recurring revenues now comprise 68%. This quarter has seen stable transaction revenues at INR 122 crores. Our retentions across wealth and asset management segment holds steady with wealth management retentions at 54 basis points and asset management retentions at 29 basis points. At an aggregate level, our overall retentions are at 59 basis points. Then moving on to expenses for the quarter, our cost-to-income ratio has improved to 44% from 45% in Q1 FY '23, as we continue our focus on costs. The total expenses for the quarter is up 7% Q-o-Q and 3% Y-o-Y at INR 179 crores.
Administration and other expenses is up 12% Q-o-Q at INR 48 crores. Coming to profitability. As stated earlier, we recorded our highest PAT at INR 173 crores, an increase of 23% Y-o-Y and up 8% Q-o-Q. Importantly, our tangible return on equity, which is ROE excluding goodwill and intangibles has further improved to 28% for the quarter from 24% levels in September 2021.
With that, we come to the end of our financial highlights, and I'll now hand it over to Anshuman to cover some key business and strategic highlights.
Thanks, Sanjay. Good afternoon, everyone. The last few months have continued to be dominated by geopolitical and global macroeconomic events. Amidst this, the 3 core tenets of our strategy that we've continuously shared with all of you, growth, resilience and agility stands firm, and we continue to measure our decisions as well as performance against 3 -- these 3 strategic principles. At the outset, as Sanjay shared our overall financial performance, the final output metrics remain strong, specifically highlighted by the continued ARR, AUM and ARR revenue growth of 17% and 23%, respectively, for the first half of FY '23. And the strong profit after tax, which stands at INR 333 crores for H1, a growth of 28% over last year. Some key positives underlying the final financial performance gives us confidence to be able to sustain the positive momentum. Some of these are specifically around net flows. So not only have net flows been at over INR 6,000 crores and remains strong in the current environment, specifically, retentions have remained firm at 71 bps on ARR and over 60 bps on an aggregate basis. We have seen our highest ever quarterly net flows in IIFL-One at about INR 3,450 crores. To put this in perspective, our full year net flows for last year under IIFL-One was about INR 3,500 crores. And this is a reflection of the robust buildup of our advisory proposition and strong client traction for the same. While overall net flows for the asset management business is low at INR 53 crores for this quarter, I wanted to highlight 2 specific aspects underlying this metric. We had planned distribution from some of our older AIS of about INR 465 crores in this quarter and liquid mutual fund, which we know will remain volatile, so our net outflows of over INR 300 crores. Adjusting for these 2, flows remain healthy, driven by the strong traction, specifically on our credit strategy. We saw net flows of over INR 750 crores. We understand market cycles and as we build our alternate asset management business, our diversified strategy across listed, unlisted, credit, real estate and infra allow us to go through these cycles with a stronger and with higher resilience. We continue to invest significantly on talent acquisition and technology. We are seeing senior people join us across wealth, sales, investments as well as the operating function, specifically technology and digital. However, we are doing this with a judicious view on sustaining our cost-to-income to around the current level of 44% to 45%. As you would recall, we have had a strong focus on capital efficiency over the last couple of years. Accordingly, we are happy to report that our tangible ROE is at 28% and absolute ROE is at 23% vis-a-vis 12.5% at the end of FY '21 and 20% at the end of FY '22. We expect to sustain this at the 23% to 25% level. In line with the above, we are pleased to announce the third interim dividend of INR 17. This aligns with our dividend policy of 70% to 80% PAT payout to our shareholders and also continues to position us fairly uniquely as a high growth and high dividend linked company. Quickly on a couple of other business updates. Just an update on Mumbai Angels. We await SEBI approval given that Mumbai Angels has a CAT1A license. And we would expect to complete the transaction in the current quarter. We are developing strategic plans for taking this remarkable platform forward and we'll share further details post the completion of the transaction. Secondly, on the mid-market segment, our work on developing a strong digital-led proposition for the next segment of wealth clients continues, and we are on track to showcase further by the end of the financial year. With that, I'd like to hand it over to Karan and open the session for Q&A.
Thank you, Anshuman. [Operator Instructions] First in line we have Mohit Mangal. Kindly unmute yourself and ask your question.
This is Mohit from BOB Capital. So congratulations on breaching the INR 170 crore net profit mark. I have specifically 3 questions. First is in terms of the net flows, I believe that even if I take that 2 outflows that were planned, I believe that it would be lower than your expectations. So can you elaborate on plans so that we have a higher net flows for the H2 FY '23?
Yes, Mohit. I think that's a fair statement. I think the net flows are slightly lower than what we would have ideally liked. I think on a gross basis for the year, and I'm kind of adding H1 and H2 together, we would ideally like net flows of somewhere between INR 35,000 crores to INR 40,000 crores for the year.
But most importantly, I think more than the INR 35,000 crores, INR 40,000 crores number, we are striving to ensure that the ARR network, which is the AUM giving us a recurring revenue should be closer to the INR 30,000-odd crore mark. Relative to the INR 30,000 crores in H1, we are close to around about INR 10,000 crores, INR 10,500 crores. So round about INR 3,000 crores, 4,000 crores, short of the net flow number.
But I think given the focus we have, I feel we'll be fairly close to that INR 30,000 crores for the full year, maybe INR 1,000, INR 2,000 crores short, but not dramatically lower than that.
Perfect. So I mean in terms of the net flow, I mean, just a follow-up on that, what are the flows coming from the existing versus new clients?
I think it's a combination, honestly. I think it continues always like it is in every financial year. I think our market share with most of our older clients is fairly high. It's in the region of somewhere between the 40% to 70%. In terms of new clients, it's very lumpy flows kind of come in. So typically, you see on a quarterly basis, the split would be closer to the 2/3, 1/3. So 65% to 70% will be coming from new clients. 30%, 35% would be coming from the older clients.
Okay. And my second question is on the carry income. We saw INR 35 crores of carry income in the first half. And I think in the earlier calls, you have guided for around INR 75 crores. So I mean something you stay with your numbers or revise them.
Yes. I think carry of round about the INR 70 crores, INR 75 crores number is a fairly predictable and more or less a given number over the current year and the next couple of years. Outside of this INR 75 crores of carry income every year, there will be potentially some more lumpy carry income, which will come in, in the next year and the year after that. But on the INR 75 crore number, there's a fairly high probability and degree of certainty of accrual over the next -- over the next 6 months and also over the next 2 financial years.
Okay. My last question is broadly [indiscernible] in, so I was reading somewhere that a lot of HNIs and UHNIs have shifted their geographical debt outside India , post COVID. So I mean, how is our business affected by this? And what are the result -- what are the return expectations of these clients?
So I think I'll answer the question in 3 parts. Mohit, I think the quantum of such people over a base of our entire client population is still in single-digit percentages. So it's not a disproportionately high number. It'll still be in the region of 2%, 3%, 4%, 5%,6%. Most of these clients have not themselves fully shifted out. In some sense, they have what is, what I would like to call their left leg outside the country, right? So in some cases, it's the spouse or in some cases it's a brother who may have become an NRI. In those cases of 7%, 8% of our clients, within that, you essentially have 2 kind of flows which go out. One, you have the capital flow and the other is the current income flow. So capital flow is also subject to a cap, even once you become an NRI of close to $1 million per financial year. So even though you end up becoming an NRI, the quantum of money moving out is going to be taking us a fairly long period of time. Where -- what goes out, obviously, is the current income. So effectively, any dividends, rent or interest post you becoming NRI effectively kind of starts moving out.
So if you kind of combine both, which is the 7%, 8% of the broader client set and the fact that it is going to be more current income as opposed to capital, the quantum of money moving out of the existing base is fairly, fairly low. But return expectations to answer your question third, in today's age would be closer to the 8% to 9% in dollar terms as compared to the 9% to 10% in rupee terms, especially because the global bonds have kind of collected substantially more than the Indian bonds. And effectively, today, you've got investment grade to close to slightly below investment grade, which includes a lot of Indian bonds, putting close to the 8.5%, 9-odd percent. So I think from an expectation perspective, plans, are in that ballpark number of 8% to 9%, but in dollar terms as compared to rupee terms.
[Operator Instructions] Next in line, we have Prayesh Jain. Kindly unmute yourself and ask the question.
This is Prayesh Jain from Motilal Oswal Institutional Equities. Karan, firstly on -- if you look at the -- Anshuman mentioned about the advisory business in IIFL-One. Could you elaborate more as to what it is and how do you think that, that could scale up? Because that is kind of dilutive to your overall IIFL-One yield and I think we had guided for a 40 bps kind of yield for IIFL-One over a medium term. So given both of them don't kind of corroborate with each other, so what's the thought out there? And could you give us more details as to what does this advisory mean?
I think there's some -- lots of terms there which are being used and sometimes intangibly. So maybe I can kind of help clarify. So there are 2 kinds of segments there and 3 levels of service, right? So effectively, in terms of levels of service, there is really the discretionary and the nondiscretionary scope advisory level of service, right? So typically, we've seen retentions on the discretionary side being closer to the 60, 65 basis points. On the nondiscretionary advisory side being closer to the 35 basis points. And on blended basis, that's really ending or closer to the 40 basis points. Where the equation really breaks is, if we are doing advisory for corporate treasury. That really happens more for a nominal fixed fee as opposed to -- would be having a retention of 35 to 60 basis points. So the 40 basis points guidance for us is excluding the corporate treasury. Outside of that, we really don't see any change to the hypothesis. On the nondiscretionary advisory side, we continue to see around about 35 basis points retention. On the discretionary side, we continue to see a 60-basis point retention. So stripped for the corporate advisory portion, I think the retention will continue to be in the region of 40%, 45%. So maybe just we will take an input from your question and also start within IIFL-One reporting corporate treasury separately, so that you get a better idea of the ongoing yield.
Yes, that would be helpful data. And secondly, Karan, just extending the previous -- previous participant question on the net flows. What gives you confidence of giving or getting to that INR 30,000 crores kind of a mark, given that the kind of environment we are in, whether you look at the global scenario or even in India, we're talking about high interest rate environment. So what kind of -- what gives you confidence of reaching that INR 30,000 crores of net flows for the full year?
So there are 2 elements to that net flow, right? So on the ARR element of reaching the INR 20,000 crores incremental, we got round about, 30% to 35% of that net flow essentially coming from AUM, which was maybe -- it's basically a line which we report separately then essentially, you even sold earlier up there, upfront was received earlier but potentially maturing over the next 18-odd months. We've seen a very high ability to convert a large part of that AUM into the ARR AUM bucket. And we believe that over the next 6 to 18 months, if I just break it up into 6 months and the 12 months bucket, we have at least 30% to 40% of that AUM maturity. And we are fairly confident nearly 2/3 of that AUM, we would be able to move into the ARR bucket. So if I would just see out of the incremental INR 20,000-odd crores, I think INR 4,500 crores, INR 5,000 crores over the next -- or maybe INR 6,000 crores across the next 6 months would be a kind of a function of our ability to convert some existing nonrevenue bearing AUM to revenue bearing. The remaining INR 13,000 crores, INR 14,000 crores is essentially will have to get out and get the net flows. There, I think it's going to be a little bit of combination, as I said earlier, between 2/3 coming from net new clients and 1/3 essentially adding wallet share from our existing clients. I think to a certain extent, obviously, that is subject to a little bit of market volatility. But typically, what happens is a lot of these transactions have already got consummated or are in the process of getting consummated. So I think our ability to add close to round about INR 5,500 crores, INR 6,000 crores a quarter of net new flows, with a little bit of volatility in the market should be there. So I think even if I look at the INR 25,000 crores of incremental ARR assets, I think I would break it up into saying INR 5000 crores to INR 6,000 crores is going to come from older assets, which are going to move from assets which are non-revenue bearing to revenue bearing. And I think we should be able to reach the current quarter numbers of INR 5,000 crores to INR 6,000 crores are net new flows coming 2/3 from new clients and 1/3 from existing clients.
Just last question, this is more on a ARR income basis. Have you seen any increased attrition in with regards to now that we are on a complete new model in terms of payouts? So have you seen any increased attrition of what would have been the attrition in the first half? And any thoughts going ahead as to how do you see the entire industry panning out given that there is a lot of money which has been invested in your competitors where they would go in for an aggressive possibly RM acquisition? So any thoughts around that would be best for you?
Actually, attrition for us on the relationship side has been fairly low single digits and that's continued. And as we go up the tree in terms of seniority, it falls even further. We did see a little bit of attrition in the firm, but that was largely on the corporate side of -- or corporate functions. We've not really ended up seeing too much attrition either on the sales relationship side or on the investment side. Having said that, I think most of our larger competitors now appreciate the importance of advisory as we go along. And I think where maybe 3 years back, there were only 2 firms largely talking about advisory and nondiscretionary. Today, I think that number has definitely increased to 6 to 7 firms. So I think from a relationship manager perspective, finally, it's going to be about working for a platform where they can get the highest wallet share from the client as opposed to necessarily a platform, which is able to get a slightly quicker distribution revenue. So I honestly feel a change of the business model given the fact that we finished the 2.5 years, most of our relationship managers today are close to round about, with varying degree, close to round about 35%, 40% to 65% of the revenues coming from ARR assets. They are actually feeling substantially more comfortable in the existing platform as opposed to going out and building all of that afresh.
Next in line, we have Kunal Shah. Kindly unmute yourself and introduce your firm.
Yes. So firstly, again, with respect to the inflows into IIFL-One, and you have spend some time in terms of discussing about the nondiscretionary advisory. But would it be fair to assume that maybe the traction in the discretionary will continue to be relatively on the lower side? And as the overall proportion of the pie, maybe the AUM and discretionary PMS would be coming off within the overall IIFL-One assets?
I wouldn't think so. So I think once we remove the popular advisory, I think the split will remain 1/3, 2/3 with 1/3 coming from discretionary and 2/3 coming from nondiscretionary. I think there's a very good acceptance of our discretionary platform, what we call internally the IIFL-One mandate. And I think in all our new client wins, we are able to see at least 10% to 15% to 20% of the portfolio, getting on the discretionary side.
So if you ask me today, I think the percentages will remain the same. I think it'll be broadly 1/3 discretionary and 2/3 advisory or nondiscretionary. But over a longer period of time, what we've seen at least in the developed markets, including U.S. and Europe, the proportion kind of moves away from 35%, 65% to closer to 50%-50%. So actually discretionary moves up over a period of time. But I think we have some time away from that. I think we will end up being closer to the 30%-70%, 35%-65%, kind of proportion.
Yes. And secondly, with respect to the overall cost-to-income. So again, this quarter, there was some element of, say, other income compared to that of last time, which also provided the benefit. But would that also translate into any kind of a variable component? And if we have to adjust for that, then maybe still on a stable state basis, we expect cost-to-income to still be sustainable? Maybe if there is no further support coming in from the other income going forward?
So I think from an other income perspective, Kunal, the way to look at it is broadly outside the NBFC, our investments are in the region of INR 700 crores to INR 800 crores. Obviously, then adjust a bit for working capital and so on and so forth. So effectively, at any point of time, you would have broadly INR 500 crores to INR 600 crores, INR 700 crores invested either in a range of things like fixed deposits to bonds to some of our own alternative investment funds. So I think that on a yearly basis, would be largely 75%, 80% -- or maybe 70%, 75% into fixed income kind of instruments and 25%, 30% into, equity, equity-related instruments. So I think on a year -- on a broad year basis, I think the other income number will aggregate somewhere between the INR 60 crores, INR 65 crores on the lower side and INR 85 crores, INR 90 crores or maybe a max of INR 100 crores on the upside. So I think from a -- obviously, on a quarter-to-quarter basis, it will fluctuate a bit. But I think the overall annual number will be between the INR 60 crores to INR 100 crores. And I really don't see any large movements in cost-to-income either -- may happen. It's a very, very sharp movement in 1 quarter. But on an annual basis, INR 60 crores to INR 100 crores is broadly what I would see as the number which we see on the other income side. In terms of the modeling itself, we are obviously slightly on the conservative side. We look at the other income in the region of INR 60 crores to INR 70 crores in terms of a broader portfolio.
Yes. And as we are already done with H1 and 6 months and looking at the overall capital market environment, are we willing to take any change in the guidance, which we have highlighted post March '22, be it either in terms of flows or maybe the AUM growth or on any other sector?
Yes. So I think from a guidance perspective, ideally, we're kind of trying to tweak it or revisit it typically at the end of the third quarter with relative focus on the next year. But in terms of the current year itself, I think there is -- if I was to look at the net flows, I think we will be very, very keen to meet the entire ARR net flows guidance, which is closer to be INR 20,000 or INR 30,000 crores. Overall net flow AUM, which really doesn't have an impact on the business itself may not be closer to the INR 35,000 crores, INR 45,000 crores, maybe closer to INR 30,000 crore, INR 35,000 crores. That's the only thing I would say. But outside of that, I don't really see any big reason to revisit any of the other numbers over the next 2 quarters.
Next in line, we have, Avinash Singh. Kindly unmute yourself and ask your question.
Am I audible?
Yes, Avinash. You're audible.
So 2 questions. The first one is IIFL-One, at the moment, I mean, it just happens to the focus area. The mutual fund business, I mean, in the scheme of things, interesting kind of a bit for the scale. And the fact of matter is that I'm building an active in the business in the Indian market context is a long journey and challenging task. But I mean, gradually, probably on a passive is where the focus is coming also in India. So do we -- I mean, does this passive line growth fits into your strategy? Or is it like -- I mean, what are your thought process in the -- obviously a few multiyear journey when it comes to the mutual fund business? That's the first question, after that I'll ask the second.
So enough, honestly, I think as we speak right now, I think the mutual fund industry itself in some sense they'll get largely divided as you rightly said between actives and passives. I think as we kind of pointed out earlier, at the immediate short term, we really don't see a right to win on the active mutual fund space. And effectively, there will be a little bit of friction in us going out and building the last mile on the mutual fund side. And that's really, till we don't establish a clear right to win. We've not really kind of gone out and invested in that business substantially. On the passive side, you're right. I think as segment is going to be fairly large. And obviously, it comes with 2 challenges. The first challenge, obviously, is how do you build out the cost economics for the passive business. So obviously, then if you end up building a good passive plus business, which I would broadly say as things like index strategies with a little bit of modification, a little bit of alpha, then obviously, you can end up with 15, 20, 25 basis points in terms of retention. But you'll have to build the cost economics very carefully on the passive business between just doing pure simple plain vanilla index funds versus index plus kind of strategy. And secondly, I think we'll have to consider culture also because while you build out passives and you build out a very strong alternate investment book, the kind of fund management expertise fees and the kind of sales teams you're building internally are fairly varied and different for both the businesses. So honestly, if you ask me and I'm kind of trying to break it up into 3 parts. One, I'm just going to focus -- say talk about the business we are focused on, which I'll loosely call as the alternates in the public market business. The second is really the active business, which is mutual fund and third is the passives. Honestly, I think for the next 12 months to 18 months to 24 months, we see a huge amount of potential on the alternates and the public market business. And that's really there -- I think we are going to be spending a large part of our time and energy both in terms of new product ideas as well as new asset classes. That's really where a large part of our focus is.
Second part is more, second question is more industry that will be clear. I mean are there a huge amount of operating levers in your wealth management business? And of course, that comes with the scale. So basically, are the top 3, 4 players, will be a different profitability zone vis-a-vis the newcomer? And off course, it takes a lot of [indiscernible]. Now where industry stands today, of course, we have sort of a movement at each end. So going forward over the next 12 months to 24 months, do you see a scope for product consolidation with some of the top players, kind of acquiring the bottom ones or you see more entrants coming into this? How do you see the industry dynamics, to conclude?
I think to answer your question on the asset management side, on the alternate side, obviously, there's a fair amount of operating leverage. We spent a lot of time over the last 2.5, 3, 4 years building investment capabilities in each of our strategies. I think today to scale up all our strategies to maybe 3x to 4x the size of what we have today would not really require us to invest massively on the investment deals. A little bit of additional investment on the distribution and sales side of the business would be needed. But you are absolutely right. I think the operating leverage on the asset management side should show up fairly high -- fairly in a fairly meaningful manner over the next 3 to 5 years. On the Wealth Management side, also, you're right. I think there is a lot of operating levers, especially in light of the fact that today, if you want to go out and be the wealth manager of choice with the client, you need the full investment on the platform.
The platform today is fairly large. It needs a lot of expertise in everything starting from products, building out a family office structure, building out the right governance mechanisms, building out the right -- having a small NBFC to support the clients, ensuring that you are able to give them advice on multiple things right from succession, trust planning, having the right advisory team in place, having the right quasi asset management structure for the discretionary business. So all of these things effectively need to be amortized over the wealth management AUM you are handling. And today, we would be among the few players who've got all of these things in place. And in that sense, obviously, the operating leverage kind of shows up. Having said that, there will be wealth managers who will be able to service maybe individually 4, 5, 6, 7, 8 families but those will be relatively fragmented businesses. They really won't be businesses where -- which would achieve scale. I think to achieve scale and finally become large, you would need to make these investments. And therefore, there will be sooner than later discovered minimum AUM you would need to be able to do this business profitably. I think it's too early in the journey of wealth management in India to decide what that AUM is. But as you go forward, both technology and regulatory costs would also come in. And effectively, the technology, regulatory and the platform cost put together will require a certain amount of minimum AUM to do business profitably. And beyond a certain AUM, obviously, the operating leverage will start kicking in very efficiently. But I think we're still in a fairly nascent stage on the business to be able to discover these numbers perfectly. But from an IIFL Wealth perspective, I think we are more towards the north side, where I think we have some bit of capacity on the relationship manager side. We're fully invested and built into the platform. So ideally, we will see some benefits of operating leverage over the next 2, 3 years.
We move on to the next question. Next in line, we have Aejas Lakhani. Kindly unmute yourself and ask your question.
Congratulations on the results. Karan, you've made 2 acquisitions over the last 5 years. There has been fairly some time since you've made these acquisitions. So could you just walk me through how these acquisitions have done in terms of how clients have grown or have the RMs who you acquired, stayed on? How's their journey been and your key learnings from these 2?
So I think both the acquisitions have been slightly different experiences to the honest, Aejas. I think the wealth advisors acquisitions really held up extremely well. I think both in terms of people, in terms of clients, in terms of the people who kind of -- they've kind of expanded their own roles and responsibilities. They've been able to add more to the business in terms of their own skill sets. Clients have expanded their wallet share in a substantially larger manner. And obviously, the profit metrics and the AUM numbers have followed. In the case of the second acquisition, I think the story is, slightly more -- slightly different in the profit numbers and the revenue numbers have held up in the second acquisition. So just from a pure financial perspective, the numbers are there. But from a people and a client platform perspective, I think did not really had the same leverage benefits what we would have assumed to which we had in the first transaction. So ideally speaking, I think the second acquisition could have done slightly better compared to the first one. In terms of pure numbers, it's stacking up, but in terms of the scale-up benefits and the synergy management that you would have liked to see is something which we've not really seen. And consequently, even in terms of attrition of people, the second acquisition has been a little bit more efficient. The first one's practically came next to 0 attrition altogether. So ideally speaking, I think if you if you ask me from a pure learnings perspective, I think the first acquisition was integrated into the system extremely well. Our second acquisition, obviously, was through COVID in some ways. So integration could have been potentially better.
Got it. And the attrition that had to take place from these acquisitions is behind you already?
Yes. Some of them are in this quarter, but yes, most of them are behind us.
Got it. And in the opening comments, Anshuman mentioned that there's been a planned distribution of about INR 465 crores, is that on -- is that the reason for the decrease in AUM on the private equity side and the gradual taper off?
No. So, I think if we just look at the broader strategies, we've got, we continue to make distribution through the sunset period of the funds. Obviously, we have a large fund, which is a special [indiscernible] fund, which has CDs, [indiscernible] raised in 2017, 2018. It was close to about INR 7,000-odd crores in terms of size, and they mature starting from 18 months back all the way to 18 months forward. So we've already returned capital plus close to maybe INR 2,500 crores, INR 3,000 crores to 2 clients. And obviously, all of it -- all the distribution in the last year, more than got offset by the new fund which we had raised on the private equity side. In this current quarter, obviously, for a small -- now we're left with these, in some senses it would be INR 4, 500 crores, INR 5,500 crores of those older funds, which are largely representing the gains will get matured over the next 18 to 24 months. And of that INR 5,500 crores, INR 450 crores of redemptions came in, this quarter.
And our credit funds raised round about INR 800 crores to INR 1,000 crores, which got offset by the INR 465 crores, INR 500 crores of redemption on the private equity side, and round about INR 300 crores, INR 350 crores of redemption on the early redemption side.
That makes a lot of sense. And your ability to get the monies that has exited, reinvested remains very high. Is that understanding correct?
Yes. So I think you have to break it up into 3 parts. So I think one of our clients was associated with us on the wealth management side. I think there the -- there essentially, I think there is a huge amount of ability for us to be able to retain the asset. We've typically seen them retaining as high as 60% to 70%. Whereas as a third-party distributor, it needs a good new product idea. If there is a good new product idea, I think there is a 30% to 50% probability of the AUM coming back. So that's really where it is in our experience. So I think if I just look at the funds over the last 12 to 18 months, we've seen broadly 55% to 60% of the AUMs stay with us.
Got it. That makes a lot of sense. And Karan last time, I think a quarter or 2 back when we spoke you were quite enthusiastic about the multi-asset product. But that's been sort of flattish. So any thoughts on that?
Multi-asset category is a new category. I think in terms of volumes, it will take time to build out because we will need round about, it's fairly bespoke in nature. So in some sense, it needs to develop ideas. I think in terms of the AUM impact will be larger flows coming through credit, infra and so on and so forth basis, especially the inflation-based assets over the next 6 to 12 months. I think the private equity side in terms of new flows will remain a little tepid. And you'll also see, I think the public market flows kind of pick up over the next 6 to 12 months.
The multi-asset bespoke strategies on the asset management side, I think will take some -- it will be kind of a derivative of the strategies we build out on the credit and the infra side. But I think the larger growth will come on -- for the next 12 to 18 months on credit and infra.
Got it. That's very clear. And just on the INR 5,000 crores of the stock bonds that you were mentioning that mature over the next 18 months, given that primary markets are the way they are, do you see any challenges in terms of from an exit perspective there?
Actually, it's a fairly concentrated position of the INR 7,500 crores. I think, if I'm not wrong, so 50% of it is -- or maybe 60% of the National Stock Exchange. We exited all our listed positions, I think, 14, 15 months back and distributed it out. So it's largely National Stock Exchange. There's a small amount in [indiscernible] So I think fairly large good solid positions. So I really don't see too much of a challenge here.
Next in line, we have Sanjay Kumar. Request you to kindly unmute yourself.
Firstly, just a clarification. So you were talking about old assets with [indiscernible] INR 11,339 crores, right? And of this, you are expecting to convert INR 5,000 crores for [indiscernible] basis. Is that understanding correct?
INR 4,000 crores to INR 5,000 crores in the current financial year.
Okay. Okay. Got it. And in terms of...
You'll have round about half of it getting matured this financial year, of which we should be able to convert 70%, 75%.
Got it. So next one, given that 2/3 of net new flows come from new clients, so in terms of sales and leads, what do we have to do differently to push the INR 6,000 crore run rate that we are seeing currently in the last 3 quarters higher? Is it because of scale, because the INR 200,000 crores AUM, 10% growth from flows is INR 20,000 crores? But we are hitting INR 300,000 crores, 10% on that AUM higher base will be INR 30,000 crores. So is it because of scale or do we have to do something differently in sales and lead generation?
I think we have to do -- it's not -- I don't need to be anywhere -- I don't think we need be on that scale or size to honestly feel that 10% of INR 200,000 crores or 10% of INR 300,000 crores will be a challenge. I think we're some way away from, some way away from that in terms of the size of the market. I think we need to do a little bit more on the sales side. I think both in terms of expanding geographically as well as kind of maybe slightly improve our conversion ratios from 60%, 70% of new deal wins to maybe 75%, 80% is what we need to do. So I think, honestly, the answer is more on the sales side, it's not really on the size of the market. I think that for that, we are still far away in terms of market share, to really say that INR 20,000 crores versus INR 30,000 crores is a function of the size of the market.
Okay. Okay. And second on, the second -- the next big lever, right, the INR 5 crore to INR 25 crore net worth clients. So is the customer acquisition or the sales process, be any different from the existing setup? So please share in detail more the strategy on how we are generating leads and how we are converting clients. Where are we on that right now?
Honestly, right now, we're not focused on the generating leads side at all there. I think our focus there right now is to build a much more lighter, more efficient digital delivery tool and understand the strategy of the business. I think we spent a lot of time and energy on that and we are fairly confident that we have a right to win. In terms of onboarding clients and really reaching out to them and kind of getting them to start looking at doing transactions is only by the end of the current financial year where we'll really go live in that sense. So it's only in March, April, we really go into the segment where you start onboarding clients and so on and so forth. But as we speak right now, on the planning side, it's more a function of looking at what differentiates us. And I think in order of what differentiates us, I think we will have to take a 3-pronged approach, both in terms of the entire product distribution piece, the ability to understand the client and work a product offering into advice as well as the ability to be able to reach out to him in an effective manner and work on an effective delivery mechanism. So I think in terms of just the conversion itself, we haven't really started that process. That's still kind of slated for an April launch. But in terms of the thought process, design, the build out, all of that's happening in there for you.
Okay. And any color or some commentary on who are the competitors in this space and what will be our volume strategy, go-to-market strategy or right to win?
So I think from a competitors' perspective, I think pretty much most of the larger banks today are servicing those segments in the most -- in the largest manner. So if I was to -- pretty much all the retail large banks in India would be servicing those segments. The challenge for us is obviously acquiring those clients because those clients kind of walk into the bank in some ways, either through a salary account or through a home loan or through a mortgage or through some credit cards and so on and so forth. So the ability to acquire those clients is potentially higher. The ability to also make fee income out of things like ForEx and net interest margin is also substantially higher. So those are our 2 challenges. The opportunity, obviously is, the majority of these clients is increasing dramatically. He's wanting more and more to do -- to engage with wealth managers, have a structured process along these investments. And third, he wants to look at all the adjacent services and most importantly, focus on the newer product ideas. So there are certain challenges and there's certain opportunities. It's really going to be a function of how well we can merge these, merge these 2 while managing the cost-to-income ratios in the right way, to be able to drive success out of it.
We have Prayesh Jain with a follow-up question. Kindly unmute yourself, Prayesh.
Firstly, just assuming the last point. And also in the broking industry, we saw that if you're trying to do the same thing in the same entity, we see a lot of challenges. You're now trying to do a discount broking as well as the traditional broking in the same entity, it becomes a challenge. For example, I'll just give you an example of [indiscernible] But on the other hand, IIFL has been able to set up the traditional broking as well as a discount broking separately, very -- done well. Do you see that kind of a challenge while working in the smaller kind of, smaller AUM category in the same entity will lead to some challenges with regards to the brand value that you have created amongst the ultra HNIs?
So I -- so just maybe other clarification. We're really not looking at going into retail in a way, right? So I think we'll still be focused more on the INR 5 crores to INR 20 crores category. So in some sense is, I understand your question fully, and I kind of agree with you. I think if you were to go down the path of trying to build a competitive efficiency of either do broking or maybe syndicating mutual funds and direct clients we will be kind of directly coinciding with people like [indiscernible] or Groww and so on and so forth.
And I think really from a culture perspective as well as what we are building now, it's not really the same. I think there is a mid-segment there between that versus what we are doing. It's largely the INR 5 crores to INR 25 crores segment, where I think from an aspiration and understanding perspective, they are slightly more skewed towards the wealth management side as opposed to the current services they are getting with most of the financial institutions they're dealing with. So I think there's a -- from a service delivery perspective from our side, it's more akin to do wealth management delivery to get to our ultra-high net worth clients.
As you said we have to offer that service and distribution on a slightly easier, more effective light touch digital platform as compared. So I don't think we're changing the core of what we do. It's just a delivery platform, which needs to change.
I think if we want to change the core of what we do and try and go down to a segment below that, I think I would agree with you. It would require a lot of cultural changes within the firm and which obviously kind of in some senses reduces the probability of success.
Secondly, account aggregation has been highly spoken about in the entire industry. And so first of all, do you think that this will be a big leverage to you in that INR 5 crore to INR 25 crore category and the digital tools that you are going to implement? And typically, how does that play out on the ultra HNI segment as well?
I think for both the segments, it's quite important for us to be able to -- once the entire asset aggregator pool kind of comes together on a page, it started off with banks, then it's now moved to demat accounts and mutual funds. It will take some time for all of us to come together. But for the ultra-high net worth clients, we bought a small technology company called [indiscernible] round about 2.5 years, maybe 4 years back. And we've been using that software like for sales and banking to be able to aggregate all our client portfolios and wealth advisors very successfully for the last 4, 5 years.
So we spent a lot of time and energy on building analytics across our client portfolios on the ultra-high net worth clients for many years. And I think we'll be in a very good position to leverage all that we learned over the last 4, 5 years and transferring them to the output which we get from the account aggregator report, both for the INR 5 to INR 25 core segment as well as in INR 25 crore segment plus.
Last question. With Bain coming in, do you think any broader level strategy or anything that would, from a, say 5- to 10-year perspective, changes or incremental things that they have -- they are thinking about to implement differently what you would have seen here possibly `in the last 5 years?
Not really, it's in some sense, I think it's secondary purchase between general client [indiscernible]. So obviously, I think it's up to us to be able to get the best on global benchmarks and global advisors which large shareholders have to offer. And outside of that, largely like before, it continues to be driven largely by the direction of the Board and the management, along with the right counsel and advice by the right shareholders who are presented on the Board.
We'll move to the next question. Next in line, we have Abhijeet Sakhare. Kindly unmute yourself to ask your question and please introduce your firm.
This is Abhijeet from Kotak. Just a couple of clarifications. Karan, if I heard it right, did you actually say that you're able to bring in new clients directly into IIFL-One?
Yes, absolutely.
Is this a recent phenomenon? What has really changed here in terms of client behavior or your proposition, pricing? Anything that you can elaborate?
I think the newer clients, all really honestly, if you want to come into -- onto the advisory platform for the last 6 to 9 months, especially. See, what happened is 2.5 years back there was change in regulations. Maybe we were only a couple of us talking about advisory. Now if you go out all the top 8, 9, 10 wealth managers are the first, which honestly is graduating towards advice as opposed to distribution. So even from a client perspective, it's becoming more the normally lay of the land as opposed to an exception lay of the land. And therefore, I think as time goes by, and I think that time is now and it started, more and more clients will move towards advisory from day one rather than head into it in -- on 1 month, 6 months, 9 months. While it's also resulting in a little of stability in pricing, still very, very early days. But I think clients will end up with some bit of stability in pricing and seeing the benefits of that, at least from our limited client set, we are seeing early shoots of some stability happening there on the pricing side.
And just a couple of follow-ups, are RM incentives different when they're able to bring in a client directly into IIFL-One? And the reason for asking is that probably, I think elsewhere, the cost-to-income ratios tend to be at the higher end, when you are looking at your advisory model now.
Correct me if I'm wrong, but is this true?
So if you just look at pure recurring revenue, obviously, the cost-to-income ratios will end up being slightly higher even for us, right? If you now strip out the projection of brokerage revenue, but it's an evolution. So I think we -- for anybody else, the cost-to-income will keep improving as they move a large portion of the income from transaction and brokerage to recurring revenue. I think we are 70% -- 60%, 70% of the way in that journey. Others might be 30%, 40% of the way through the journey.
But typically speaking, in very good markets, if you got a very high transaction brokerage revenue, your cost-to-income will look very attractive. But in tougher markets, they'll start looking very sharp. Whereas for us, it will be slightly more normalized. In tougher markets, it'll look better. And in really good markets, it's not as if it will improve phenomenally because transaction brokerage revenue will continue to be relatively, relative to competition, a smaller portion of the number.
Got it. Last one is that on the new client wins, which are happening, which are essentially driving the flows every quarter, are these -- the clients are like new to this kind of a setup or you kind of acquiring clients from competition? Any sense of that would be helpful.
I think it's a combination of both, Abhijeet, adding clients from competition as well as new. It's just that the clients you acquire from competition takes slightly longer to scale up. So the immediate impact of the AUM is slightly lower because nobody is able to transfer everything en masse. It takes some bit of time for them to move AUM. Obviously, a client who is coming in afresh with a new liquidity there is more or less investing and getting everything afresh. So in that sense, it becomes a slightly more disproportionate part. And therefore, though, if you look at clients acquired from competition and absolutely new clients, the ratio will be maybe 70%-30% in favor of clients acquired from competition. In terms of AUM it becomes reverse because the client who's kind of getting a liquidity event is investing the entire money today. And therefore, it's kind of becoming 60%, 65% of the AUMs coming from there and 35%, 40% is really coming from the existing clients.
Next question, we have from Ganesh [indiscernible]. Kindly unmute yourself and ask your question.
Ganesh, I think you're on mute.
Karan, I don't think so. This is Ganesh here. I don't think so it's from my side.
Now we can hear you, Ganesh. Sorry.
Yes. No, no, I'm saying that there's no question from my end. I don't know [indiscernible]
Great. Thank you, everyone, for the call. And I wish all of you a Happy Diwali and festival greetings. Thank you.
This brings us to the end of this investor call. Thank you, ladies and gentlemen, for joining us this evening. Have a nice evening.