How to Retire at 34

As with their finances, so with their lives--the Ramanathans give the ‘high-risk, high-return’ philosophy a new definition.
Archana Rai	page 1 of 1
HALF A million dollars is what they set out to earn, as they winged their way to the US in the late eighties. To 24-year-old Swati and Ramesh Ramanathan, that had seemed a good sum to return home with. A garage sale of all their worldly possessions had fetched Rs 3 lakh, they had mustered an educational loan of another Rs 3 lakh to fund Ramesh’s goal of a Yale MBA, and they were off. The couple’s decision to upend a promising life in Bangalore and take on debt to chase the American dream was roundly deemed foolhardy by family and friends. The sense of disbelief at their departure, however, was nothing compared to what greeted the couple a decade later when they actually returned home. As managing director of Citibank’s Equity Derivatives Business in Europe, Ramesh was among Citi’s top 150 executives, tipped as potential CEO material. Their personal fortune by then was "many multiples of half a million dollars." Swati’s Masters in design from Brooklyn’s Pratt Institute had found her jobs at Fortune 500 design firms. Daughter Shunori was six and son Rishab all of two. At this point, the Ramanathans decided it was time to give up their jobs, retire and head back home. When he took this decision, Ramesh was 34; and it was the third time in his life that he was veering away from a scripted success story to rewrite the plot. "I grew up in a middle-class home–financial security is extremely important to me–but equally important is intellectual honesty; I need to believe in what I am doing," he says. And if that has meant plunging into decisions that put everything achieved thus far at risk, the Ramanathans have never hesitated. The first right turn The tough decisions started early. The couple met in Bangalore when they were 18. Ramesh enrolled for a Masters in Physics and Computers at BITS Pilani, while Swati convinced her conservative Gujarati family to allow her to train in design at NID, Ahmedabad. Determined to marry in the face of stiff parental opposition, Ramesh decided to drop out of BITS in his fourth year so he could start earning. Says Ramesh: "My mother was devastated but my father backed me and allowed me to start working with him in his machinery-handling business." It was his first brush with the real world of smokestack industries and grimy shop floors. He quickly learnt the ropes well enough to enter into a profit-sharing arrangement with his father. His first earnings of Rs 3,000 went to Swati, who promptly opened a bank account. After a year, and now married, Ramesh had learnt enough to launch his own business trading in specialty steel, while Swati started off an interior design firm. The 20-something couple was soon earning close to Rs 30,000 a month. A rented apartment in downtown Bangalore, a car and Rs 1.2 lakh invested in a piece of real estate, the couple was well on its way to yuppiedom. Already, the real estate investment is clear evidence that, unlike an average couple that would have put its money into savings accounts or a mutual fund, Ramanathan was ready to tread deep waters. Spiritually, however, the couple felt stagnated. Says Swati: "We were making money but intellectually we were vegetating." They wanted a change. To throw away an established life and start afresh in the US took courage. But that’s something the Ramanathans had in plenty. With his sights, as usual, set high, Ramesh would choose Ivy League. They decided to take on a loan but get the best degree from the best college. Again, a glimpse of that ability to up the stakes. The two of them reached Yale with just enough for Ramesh’s first year’s tuition. Swati waited tables and ran the college cafeteria to make ends meet. They hoarded discount coupons and wondered if their budget would stretch to include cauliflower for dinner. When Ramesh landed a six-week summer internship at Citi that paid him $1,200 a week, it was the first vindication that throwing up a flourishing career back home had been the right choice. A university loan completed the second year and, as Swati says: "The second year was wonderful–we knew he would get a placement at Citi." On the fast track. A starting salary of $65,000 as management associate and a sign-on bonus of $20,000 launched the Ramanathans on a halcyon stint in the world of international finance. But Ramesh soon realised that the salary was incidental: "The real money in international banking is in the bonuses; the more profit you generate for the bank, the more you earn as bonus." Not a gambit the punter Ramesh would easily pass. In two years, drawing on Citi’s proven strength in derivatives, Ramesh created a derivatives product with a basket of multimedia stock for the retail market. However, all he got out of it was a fat bonus; somebody else got to run the business. Undeterred, he put together another derivatives product aimed at corporate clients. This time, he insisted he would run the business. The gamble paid off, and in two years, he had built a $50 million business from scratch. Four and a half years after joining Citi, Ramesh had moved into the high-powered orbit of the bank’s boardrooms. Meanwhile, Swati was working with top-notch design companies. Ramesh’s investment antennae were meanwhile twitching sharply. He chose equity, and put money into Nokia, EMC and other less-known stocks with high performing potential. Nokia, a Finnish forest produce company, that was flirting with telecom, was one of his first buys. Listed in Europe, it was first noticed by the Fidelity Magellan Fund. Ramesh put in around $20,000 in the stock and stayed invested even as Fidelity cashed out. The faith paid off when Nokia became a byword for mobile telephony. EMC, the computer hardware maker, turned out to be another winning buy. By the time he moved to London as head of Citi’s equity derivatives business in Europe, his personal portfolio, fuelled by his spectacular bonus earnings and a very high appetite for risk, had a compounded annual growth rate of 40-50 per cent. High-flying careers, jet-setting lifestyle, and more money than they had ever set out to earn. Nearing the summit, you’d say. Turn right back For the Ramanathans, though, the lure of India was a constant note in the background. In fact, they would not buy real estate in the US because that would have been tantamount to putting down roots there. Returning was always the background motif. When Swati volunteered for community work, she saw something that made this wish stronger. She says: "When I went for community work, I was surprised at how efficient the systems were for citizen participation. I asked myself why India couldn’t be like this." It was at this point that the couple realised that the system worked because somebody had taken the trouble to put it in place. Says Swati: "It was a simple leap from there to asking ourselves, if not us who else, to put a system in place?" Moving back to India was no longer a distant option, it became a certainty. By giving up a high-flying career at Citi, Ramesh knew he was staking everything to chase an ideal. But as always, he was comfortable with the gamble–punt high but take the chips home. The final move came when a friend, who had lost both parents within a week of each other in India, spent a weekend with them. Says Swati: "The enormity of her loss jolted us. All we could think was, what were we waiting for?" Monday morning, the couple put in their papers. Even as Citi flew in a director to make Ramesh reconsider, the couple was already looking ahead to India. Planning the move The couple sat down and listed every detail, down to household help, of what it would cost to retire at 34 and begin afresh back home. The derivatives genius brought to bear some of that formidable skill to crafting a personal finance strategy. Central to the plan was ensuring a regular cash flow to take care of living expenses. "It was tempting," admits Ramesh, "to return to India under the Citi umbrella." But he knew it would be self-defeating, if his heart was set on provoking social change. The family was clear they were making a geographical shift, not a lifestyle one. So, living expenses–including household, fuel, staff, two cars–was calculated to average about Rs 2 lakh a month. The children’s fees alone totalled up to Rs 4 lakh annually. The capital cost of the move, including a new home, was pegged at Rs 1.5 crore. Says Ramesh: "We realised that with about Rs 24 lakh annually, we could support a very comfortable lifestyle in India." Then, they promised themselves a no-expense-spared overseas trip every year to touch base with friends–another $30,000-50,000 a year. Says Ramesh: "All put together, it would amount to Rs 50 lakh annually; still half of what we spent at the time of my last posting in London." The big difference: then he drew a hefty salary and bonus, now he would need to make his money work to get the Rs 50 lakh. Says Ramesh: "To get the best return on investment, we had to be free to invest our dollar earnings anywhere in the globe." They, therefore, set up a private equity investment vehicle registered in Mauritius, Ramanathan Capital, to handle the couple’s personal finances and invest in private equity worldwide. Soon, their personal finances were in fine fettle. Their cash flow needs were now met by their investments–stocks, fixed- income instruments and a gradual exposure to Indian equity. However, meeting lifestyle expenses was only a part of the overall financial plan. Their money would also have to fund the voluntary initiatives that would henceforth form the bedrock of their lives in India. The new role Meanwhile, Ramesh was searching for a role for himself in a changing India. He travelled across the country for the first six months, meeting NGOs and bureaucrats. Micro-finance investment and public policy were his two areas of interest. In Bangalore, the state government was putting in place the Bangalore Agenda Task Force (BATF), inviting corporate participation in public policy. Enthused, Ramesh signed up to devise a fund-based accounting system for the Bangalore City Corporation. The double entry book keeping system was in place by April 2001, allowing detailed listings such as the money allotted to each city ward for development work. Finally, disappointed when BATF was unable to involve citizens in the decision-making process, Ramesh and Swati founded Janaagraha, funded entirely by the Ramanathan Foundation with a corpus of Rs 2.5 crore. "True democracy means a citizen should have a voice in government," is what the couple firmly believes. Today, every citizen in each of Bangalore’s 100 corporation wards can participate in the budget allocation of her ward. In 22 wards, corporators have accepted citizens' suggestions. Two years after inception, Janaagraha supports a volunteer staff of 15 and Ramesh reckons it will cost Rs 30-50 lakh annually to run. Therefore, he realigned his investment strategy. The Ramanathan Foundation corpus is now invested in tenanted commercial real estate, earning tax-free returns of 12 per cent. Says Ramesh: "Our personal investments on the other hand return 6-8 per cent after tax, a reason why I will consider more investment in real estate." As Janaagraha draws up more of his time, Ramesh is moving his personal investment decisions into the hands of professional money managers. Says Ramesh: "By the time we’re 50, both our children will be in their undergraduate courses. We will support them through that and for their future, we’ve set up an endowment each." As the couple turns 40, says Ramesh: "Our everyday cash flow expenses are being met, the children’s endowment is in place, Janaagraha has been provided for, so what’s left?" Very little. They returned because "they wanted to give back," and they’ve done that very well indeed. http://www.outlookmoney.com/scripts/IIH021C1.asp?sectionid=10&categoryid=65&articleid=4923