Inflation is the number every investment has to beat

From audit rooms to venture capital

Muzamil opens with a recent controversy, after Azad Chaiwala said chartered accountancy could be done in ten days. He wanted a chartered accountant on the show, and chose one who had moved on into startups and investment.

Omer Pervez Khan is a partner at High Output Venture, a Singapore-based venture studio. It builds companies, invests in startups, and backs traditional businesses such as a distribution company out of Myanmar and a media studio in Vietnam. In Pakistan, its work is mostly venture investing.

Omer trained in audit at PwC in Islamabad. Then he was dragged along to a startup pitching competition, where he stood at the back and hoped it would end soon. The founders’ energy changed his mind. Soon after, his wife, who worked at the accelerator Invest2Innovate, asked him to teach its founders the basics: profit and loss statements, costing and pricing.

That session grew into pro bono work on financial models, then investor negotiations, then full-time fundraising consulting for more than 50 entrepreneurs over three or four years. When venture capital grew in Pakistan, he offered a doubtful venture firm four months of free work. It hired him after three. He was 30 or 31.

He explains the pull of the move in terms of limits. “Accounting is a cost center,” he says. A client wants a service at a fixed cost and will not pay beyond it. Investing works the other way. “If you are making money for someone, there is no limit.”

What counts as an investment

Muzamil sets up a scenario. A young IT worker earns two to two and a half lakh rupees a month, spends one lakh, and ends the year with 10 to 12 lakh saved. What should they do with it?

Omer starts with four basics: the difference between an asset and a liability, return on investment and its link to inflation, diversification, and a clear reason for investing at all. An asset, in his definition, is something from which future economic benefits flow to you.

His example is a Honda Civic. Ten years ago a new one cost around 17 lakh. Selling it today for 20 or 21 lakh feels like a gain, yet a new Civic now costs about 36 or 37 lakh. In real terms, the car lost value. By contrast, two years of toothpaste bought in a buy-one-get-one sale works like an asset, because it saves you that spending. He stresses that he is explaining the idea, and is not advising anyone to stockpile.

The same logic applies to property. Over ten years of average inflation, he says, the rupee loses about half its value. A plot that does not double in that time has lost money. “Even if this plot doubles in ten years, it is not an investment. It is your saving,” he says. For anyone who wants to go deeper on assets and liabilities, he recommends Rich Dad Poor Dad.

Real returns and the inflation test

Return on investment is simple on paper. Put in 100 rupees, get 200 back after ten years, and the return is 2x. Omer says the number that matters is the inflation-adjusted return. Inflation, he explains, comes from a rising money supply, faster spending and demand running ahead of supply. Ten years ago 100 rupees might buy three tubes of toothpaste. Five years later it may buy two.

Muzamil puts it in potatoes. If his 100 rupees became 200, but the price of potatoes also doubled, he can buy the same five kilos as before. Omer agrees. In rupee terms the saver looks richer. In real terms nothing has changed. His test for any offer, including a property dealer’s promise that a plot will double, is whether the return beats inflation of roughly 7 to 8 percent a year. Muzamil adds that property often feels like a dead investment to him: money parked in one plot after another, with no productivity growth.

Where a small saver can start

Omer warns that smaller sums take longer to grow. “If someone comes and says, I have 10 lakh and I want to make it 20 or 30 lakh within a year, then that can only be some kind of scam,” he says. Higher returns bring higher risk. Wealth is built over time, and the saver’s one job is to make sure the return beats inflation.

Mutual funds are his first suggestion. A saver can start with 5,000 rupees and add money every month. Funds focus on equities, the money market and bonds, or assets such as gold, and they are well regulated. He points to the MUFAP website, which lists Pakistan’s mutual funds and their performance against inflation. Equity funds carry more risk: they fell when the pandemic hit, then rose as the PSX index climbed from around 27,000 to past 44,000.

On property, a small budget usually means a down payment and instalments in an underdeveloped area. Research decides the outcome: who the developer is and who stands behind the project. A rental property, or renting out a portion of your own home, turns property into an asset. The rent arrives every month on top of any rise in value.

Diversifying by risk and by stage of life

Diversification, Omer says, depends on the risk and reward of each option and on your stage of life. A 20-year-old with three lakh rupees can take a big swing. Had such a person asked him a year earlier, he says, he would have told them to put all three lakh into Bitcoin, since losing it would do little harm. Someone with a family has to be more careful.

For the careful portion, he points to Defence and Naya Pakistan certificates, which at the time were beating inflation. Governments issue these bonds to raise money for development. The idea, he notes, began in wartime, when bonds paid for wars. The government guarantees them, which is why they are called risk free. Companies issue corporate bonds in the same way, raising debt instead of equity.

This gives him a benchmark. “Bonds are risk free. So anything else I want to put money in will have a higher risk than a bond,” he says. If a bond pays 7 or 8 percent and a riskier option pays 6, the bond wins. He links this to venture capital. VC carries the highest risk, which is why a fund manager has to promise investors 10x. Without that, investors would choose private equity, corporate bonds or property.

Saving, cash and the trust behind paper money

Muzamil raises the Pakistani habit of keeping cash at home for rainy days. Omer frames saving as a conflict between two schools of economics. The Keynesian school, which most of the world follows, is debt based and says saving does not help. The Austrian school says people should save. Gold, where many Pakistanis keep their savings, usually holds up against inflation. Cash loses value every year, so for the person holding it, cash works like an expense.

He also questions the system itself. About 90 percent of money in circulation, he says, is credit, and only about 10 percent is actual cash. Easy credit stimulates the economy, but it borrows from future generations. He suspects the current cycle may be the last of its kind. If saving were the general habit, he thinks that might be the better way.

On the money printed after COVID, he is direct: it is not sustainable. A paper currency rests on trust in the paper and the government behind it. The dollar is the world reserve currency, and oil trades in dollars. If a large power such as China pushed back, that trust could waver, and since every currency is pegged to the dollar, every paper currency would be in trouble.

The new money shows up in US stocks at all-time highs, gold near its high and Bitcoin at record levels. It flows to funds, banks and companies, which is why everyday inflation feels slower than it is. Muzamil notes record US jobless claims arriving alongside record company valuations. Omer calls it a mismatch: the stock market is not showing reality.

The good case and the worst case

Muzamil asks for a good, an okay and a worst-case scenario. Omer spends his time on the two ends. In the good case, a crisis opens doors for small investors that stay shut in stable times. The skill is to spot mega trends. If currencies keep losing value, gold could become a low-risk, high-return bet. He repeats that he is not an investment adviser and that this is analysis only. Trends, he says, “are hidden in plain sight. If you go looking for them, you will find a lot of things.”

The worst case is darker. Many small businesses shut during the pandemic, while stimulus went to big companies. Large firms already buy promising newcomers, as Google did with YouTube and Facebook with Instagram and WhatsApp. When small grocers close, Walmart gains. Omer sees a world run by a few companies that make the rules, perhaps with a universal basic income to keep people going. Both call it very Orwellian. He places it 10 to 20 years out.

Bitcoin, blockchain and coins as shares

Muzamil is sceptical of Bitcoin. He sees little real utility beyond a digital alternative to gold. He is more struck by China’s digital yuan, which could let a government issue money with a time limit, or money that can only be spent at grocery stores. A central bank currency like that, he says, would end the dream of decentralisation.

Omer agrees that governments will not give up control. They make people use their currency by demanding taxes in it. He thinks Bitcoin could become a settlement layer, the role gold plays when countries settle accounts, while everyday money stays under central bank control.

Then he offers a different way to look at coins. Muzamil says he would have invested in Amazon, YouTube or Skype at the start. Ordinary people could not, because those were private companies. Blockchain, Omer says, is a technology first, and each coin represents a use case built on it, such as Ripple for smart contracts or Ethereum for decentralised apps. “You have to see these coins as your route to invest in the technology itself,” he says. If a use case is widely adopted, its coin rises, the way a share rises when a company does well.

Omer closes by saying the topic could have filled eight to ten hours. His parting advice is to keep watching the world’s trends.