Asset gathering is not the principal activity of Dwaith Funds. Focusing on long-term growth of assets under management is the principal activity.
Currently, we have select families invested in the funds, and below is the status of the funds:
- Dwaith Partners is a Foreign Portfolio Investor (FPI) in India. As of Nov 2021 – Dwaith Partners obtained a Category 2 FPI listing. Today, the fund is invested in GARP + Value type securities in the USA, India, and China
- Dwaith Portfolio Management Services (PMS). The PMS is open from Feb 2024. Before that, individual accounts were handled through advisory mode
How will the fund grow?
Dwaith Funds will never be an open-ended, large partnership with hundreds of partners. Likely, Dwaith Funds will have a few dozen member partners and manage a few hundred million dollars with the partners invested for the long term. Word of mouth will likely be the biggest growth marketing strategy of Dwaith Funds.
We will focus excessively on setting the right processes (taxation, auditing, banking, custodian relations). We have excellent banking, auditing, and custodian partners. UBS in the USA, HDFC in India as Bankers and Custodians, Rashmin Sanghvi Associates as FEMA/FERA/SEBI and taxation experts, Tjong & Hsia as SEC, fund management & taxation advisors and lawyers.
Further growth will largely depend on the investment returns and the stewardship attitude shown by Dwaith Funds towards its limited partners.
What happens if we get hit by a bus? Is there a clear succession planning?
The operational agreement and limited liability agreements are very clear. Upon dissolution, the partners will get the equivalent amount of shares of underlying holdings. They can be distributed as-is or sold by a designated liquidator to distribute equivalent money.
How do we handle individual taxes? Do we optimize for tax efficiency?
Absolutely. K-1s and detailed equity statements will be issued annually that disclose investors’ tax liability. Also, most investments will be made with long-term (LT) gains in mind. If a position warrants to be sold for short-term (ST) gains due to some compelling reason (growth, gets quickly over-valued, etc) – such actions will be promptly made. Audited statements will be provided.
Are there entry or exit loads? When can investors withdraw or add money?
There will be no entry or exit loads. However, administrative charges or legal charges will be collected as and when they arise (at actuals). There will be no penalty fees or punitive charges.
A notice of 60 days is needed for withdrawal and annual withdrawals can be made on 31 January.
Fresh investments can be made monthly or at the discretionary approval of the managing partner per the operational agreement.
How will the performance fees be charged?
Performance fees of Advisor (25% of returns over 6% hurdle rate) are billed annually to Dwaith Partners and bi-annually at Dwaith PMS. They will only apply with standard high water marks (i.e., funds will need to be always at all-time highs for any performance fees to become applicable).
If for a given year (or multiple years until high water mark is achieved), the returns are sub 6%, no performance fees will be payable to the managing partner.
Does the managing partner have his money invested in Dwaith Funds?
Today, Indian tax laws do not permit Indian citizens to invest in funds based outside of India that invest into India (roundtripping under Reserve Bank of India guidelines: Link). However, if these laws change, the managing partner will have a large (>50%) percentage of his wealth in Dwaith Partners in the US. Dwaith PMS holds a portion of the managing partner’s money.
All of the managing partner’s investments are made in the same manner as Dwaith Partners and the interests of partners are 100% aligned as he will not be paid unless he meets the minimum 6% returns threshold. Asset gathering will not give him extra money as no percentage of AUM (Assets Under Management) is charged as fees. Typically Hedge Funds charge 1-2% of AUM as fees and typically drive their interest in asset accumulation.
Is the managing partner dependent on Dwaith Funds to earn his living expenses? What if there are no performance fees for many years?
Since 2018 (when he moved back from the US), Harsha has been financially independent. He is not dependent on Dwaith Funds. He will never draw a remuneration from Dwaith Funds.
He hates the idea of countries controlling skilled people working/living freely. He held permanent residency permits in Germany (Niederlassungserlaubnis) and the USA (Green Card) previously.
He gave up the residency permits, not to hold-up slots for other skilled workers who might benefit from the same, and more importantly to simplify his taxes. Holding onto a US Green Card might have simplified the setting up of Dwaith Partners itself, but that is a small penalty to pay. His thoughts on financial independence are penned here.
He lives in Bangalore, India with his family and has sufficient reserves and yearly dividend income to live well in any country worldwide.
One of his main ideas for the next decade and beyond is the democratization of capital taking place across the world. This will lead to growth in parts of the world that were limited due to the lack of opportunities/capital. Physical boundaries are becoming less relevant in the world as technology is linking the world in interesting ways. Some of his thoughts are explained in the 2020 investment letter written during the Covid pandemic.
If Dwaith Funds grows, where will it continue to invest? Will India remain the principal destination?
India will remain the principal destination for investments. Investments will be made based on two factors:
- Comfort in Return ‘of’ Investment vs. Return ‘on’ Investment. If the country or company offers stability of the investment and has sufficient risk to reward offering and
- Opportunity cost (versus existing investments) and the relative discounts at which the stocks are trading and the likely tax implications for switch-over
Likely, a portion of the portfolio over the years will find itself in countries outside of India (emerging and frontier markets). The managing partner’s general view on this as well as the concept of endurance and permanence are explained in his 2018 investment letter.
What if there are no opportunities? What if the markets worldwide become overvalued?
Money will be returned to the partners in such a scenario. This situation is likely to happen in the next decade or two and we will be prepared to right size or close the funds under such circumstances.