Indian ultra-rich increasingly taking family office route for investments

Family office has been a popular route among ultra-high networth (UHNW) individuals across the world for managing their family's wealth. In the US, family offices of Rockefeller and Rothschild have existed for more than a century now, but in India the practice has taken off only recently.

"The rapid expansion of UHNW individuals in India has led to a growing appetite for more efficient, effective and prosperous ways to invest money and manage assets," says a report on Indian family offices by Edelweiss and Campden Family Connect.

"Fuelled by global trends and a desire to further professionalise a family's practice, families of great wealth are starting to set up family offices as vehicles through which they can invest their wealth into different asset classes such as equities, private equity, real estate, fixed income and hedge funds," it adds.

According to the report, which studied 78 families of wealth in India, nearly half (49 per cent) utilise family office services. The report says that these services most often come in the form of hybrid family offices which are family office services that are embedded in the family business (22 per cent), which is a common form of early family office development.

The report says the wealth community in India has shown signs of further professionalising their wealth management structures and has been establishing single family offices that are independent of the family business, as denoted by 19 per cent of respondents, or establishing/joining multifamily offices as noted by 8 per cent. The remaining families either do not use wealth management services (32 per cent), take their wealth management advice from family or friends (18 per cent), or they rely on external advisers (31 per cent).

The report defines family office as a private office for a family with considerable wealth. Some of its functions include, but are not limited to, wealth management, investing, managing corporate and family governance issues and performing administrative and concierge duties. The average assets under management (AUM) of the family offices represented within this report stands at $318 million. The average net worth of the families is $645 million.

Here are some other insights from the report.

• The core reasons for founding family office are to add a layer of professionalism to their family business and investment structures (53 per cent), to help successfully transfer wealth between generations (44 per cent) and to embark on co-investing opportunities (38 per cent).
• Nearly every family represented within this research invests in India (99 per cent). Outside of this, 14 per cent also invest in North America, 11 per cent in Europe, 10 per cent in Asia-Pacific, 7 per cent in the Middle East and 5 per cent in Africa.
• Sharp focus is on preparation for the large-scale generational transition that has already begun to take place globally, 62per cent of families in India now have some form of succession plan in place. However, only 19 per cent of these are written and formally agreed. The remainder are either simply verbally agreed (14 per cent) or informally written (29 per cent), suggesting that succession planning needs to remain in sharp focus.
• The responsibilities that families allocate to their family offices vary considerably from wealth management to family-related. At present, the most common are: 1) to act as an investment management service (69 per cent); 2) to support new family businesses (63 per cent); and 3) to provide tax and legal advice (57per cent). Services that are also offered, but to a lesser degree, include family counselling/relationship management (44 per cent), administrative services (42 per cent), and concierge and/or security services for family members (24 per cent).
• The vast majority, 95 per cent, of the families give philanthropically. The most common areas to give to are education, children/youth and poverty alleviation.