As the nation's wealthy population grows and seeks more sophisticated ways to manage both family assets and affairs, the number of family offices in India will also rise.
Since liberalization and reform in the mid-1980s, India has known only one direction for its economy: up.
That growth accelerated over time, as the country has enjoyed one of the fastest growing economies in the world and remains in that position. The World Economic Forum predicts India to have the world's fastest growing economy in 2023.
While challenges persist with poverty, inflation, and employment, there has nonetheless been a ton of progress, as rising numbers enter the middle class and upper echelons of the economic strata.
As India's ultra-wealthy population grows, they'll have questions about their newly-made fortunes:
With these questions in mind, an increasingly obvious and popular solution is by setting up a family office.
A family office is a privately held entity, typically discrete in nature, that manages investments and wealth for a family who have a minimum of USD $50-$100 million.
The main reason for establishing a family office is to preserve and grow the wealth for the next generations of the family. The capital they invest is their own private wealth.
There are various areas to be managed in a family office, for example property, household staff, travel, daily accounting, payroll activities, legal affairs, and so on.
These entities can be set up as single family office (SFO) or a multi-family office (MFO).
While a single family office manages a range of tasks on behalf of a particular family, a multi-family office provides services to a group of families or individuals who are part of the same team.
The SFOs are broader in scope as they look after a single family’s requirements, whereas the MFOs offer a smaller range of services and focus on core professional skills such as financial and investment management, legal advice and trust and company services.
The concept dates back to as early as 1834 with the DuPont family in France, and the first full-service single family office was established in the United States in 1882 by John D. Rockefeller.
These entities grew in practice over the next 100+ years, gradually becoming more sophisticated in operations and recognized as formal organizations.
By the mid-2000s, family offices became widely recognized as a distinct industry with its own trade organizations, events, and a variety of financial services firms tailoring their offerings to serve them.
While the United States and Europe make up the majority of family offices today, there is a fast growing number of Asian family offices, and India is no exception.
Indeed, India's super-wealthy families see the benefits of setting up family offices and have already begun setting up their own,. It's a phenomeon that started as early as the ealy
Of course, many will establish the entity in India, but some will establish theirs abroad, as seen by Mukesh Ambani, establishing his single family office in Singapore.
That said, no matter where one sets up shop, they must know what they want to accomplish by setting up such organization. There is a reason why families need a large sum of assets: running a family office, while highly beneficial, is a very expensive endeavor.
Nitai Utkarsh, a Delhi-based family office executive, had this to say about setting up:
“It cannot be a fad, a ‘peer-did-this-so-I-have-to-do-it’ phenomenon."
Jai Rupani, chief investment officer of a Bengaluru-based single family office, highly recommends learning from others' experiences:
"If you are contemplating setting one up, go and meet the guys who are ahead of you in the pack and you can ask questions about how they started, what worked for them, and what didn’t work."
With these rising numbers, there is definitely a need for family offices.
Aditya Gadge, founder of the Association of International Wealth Management, share his view:
“The rapid extension of UHNWIs (ultra-high net worth individuals) in India has led to a growing appetite for more efficient, effective, and prosperous ways to invest money and manage assets."
It is never safe to keeping all one's eggs in one basket.
According to the findings of Trica, an entity of investment platform Lets Venture, the private market portfolio of Indian family offices comprises of direct startup investments at 47%, exposure to VC/PE (Venture Capital/Private Equity) funds at 32%, and exposure to venture debt funds at 11%.
This comes at a time when family offices have nearly doubled their allocation to private markets to 40% in the last 5 years, per EY's findings.
A few reasons for direct investments in the startup sector are due to:
And the family office investments are well received by the startups.
Startups prefer and look forward to investments from the family offices for the reasons:
“The inclination of family offices to opt for direct startup investments is a sign of increased acceptance of the asset class given more liquidity, access and transparency, reflecting well on the contribution of platforms... that are democratizing access and eliminating information arbitrage."
- Nimesh Kampani, co-founder and CEO, Trica
Indian family offices also invest in bonds, public equities, real estate, and hedge funds.
Besides keeping track of performance for the above-mentioned investments, they have to manage the technology around it.
It becomes difficult for a single person or two to manage reports and a tech infrastructure, especially when it's not their area of expertise nor the best use of their time to do so.
Even the small mistakes in calculations can ruin a report. Typos and simply being human do happen.
Outsourcing is one way to help reduce those risks, mentioned below.
As India's ultra-wealthy population grows, they will consider location.
While many family offices will be set up in India, others will go abroad to Singapore and Dubai.
Every family has different reasons for staying or going, but some reasons for going are based on tax policies, regulatory environments, and access to talent for their family office.
Millionaire migration out has been a trend among some of India's wealthy, and lawmakers would like to reverse that trend.
That is why the government set up the GIFT (Gujarat International Finance Tec-City) city.
Located in the state of Gujarat in both Gandhinagar and Ahmedabad, GIFT has been built for the purpose of attracting capital both within India and from abroad. Built on 886 acres with a multi-service Special Economic Zone (SEZ), GIFT is home to India’s first International Financial Services Centre (IFSC), plus a Domestic Tariff Area (DTA).
In July 2022, Prime Minister Narendra Modi said GIFT City should be a center of excellence to rival Asia's major money hubs.
“I want GIFT to be a gateway for global equity and debt capital for sustainable development. GIFT should compete with the centers in Dubai and Singapore.”
- Prime Minister Narendra Modi
And it's not to say India doesn't have its advantages without GIFT.
After all, the familiarity of one's home country and having influence, as well as being close to family and business interests, are compelling enough of reasons to stay home.
As mentioned above, there's so much that goes in to establishing a family office: investing, taxes, accounting, legal, etc.
For the entity to work effectively, one needs a lot of resources and to use those resources efficiently.
In most cases, it doesn't make sense to rely on family members to handle everything, including investment operations.
Consider leveraging third parties that are proven experts in their field. An established third party will likely do the work at a lower cost and much better than done in-house.
Family offices in India can leverage the same outsourcing providers that wealthy families in the US and Europe already work with, like Empaxis.
Empaxis has operational centers in Noida and Kolkata, close by and capable in serving India's ultra-high net worth population.
To learn more about how to decide what to outsource, check out this Forbes article.
Of course, investing in private equity and venture capital are popular choices for India's super-wealthy families.
But the challenge that comes with those investments is the volume of statements that need to be processed.
It's a highly manual process of extracting data and generating reports, but Empaxis can automate it all.
The growth of family offices in India is certainly a trend to watch.
With so much new wealth, these privately run entities will continue being formed, and they will need services to help them function properly.
While family offices can handle some processes internally, they will need to rely on outsourced experts in other areas, be it in accounting, tax and estate management, legal counsel, investment management (OCIOs), or middle- and back-office.
With a proper plan in place, the country's single and multi-family offices will thrive.
Family offices need operations and automation experts, qualified portfolio accounting specialists who can run their reconciliation and performance reports, among other back-office services required. Empaxis has those resources and is here to help.