What are your general observations of the Indian family office market?
The concept of a ‘family office’ is very nascent in India with only 45 formally structured family offices in existence. However, it is gaining popularity. In the recent past, India experienced its fastest growth across all of the world’s major economies. This growth has led to many families setting up businesses in India. Add to this the recent sales of assets and exits from family businesses and it has contributed to the growth of ultra-high net worth individuals in India.
As a consequence of this wealth generation, there has been an increasing proliferation of wealth management services being offered. While the concept of family office maybe gaining traction, there is a dearth of understanding on the importance and purpose of them.
In what areas do families need better understanding?
There is a strong requirement for education and guidance on not only establishing a family office, but also for succession planning to ensure smooth transition of ownership and wealth inheritance.
Families also need to be educated on the evolving scope of services provided by family offices such as philanthropy and grooming the next generation.
Do you see more family offices moving from being ‘embedded’ in the family business to independent and professionalising?
Yes, very much. The services offered by an independent family office are much broader than financial advisers. An independent family office will be aligned and focused on family's interests, rather than taking decisions beneficial for the business. As promoters and shareholders professionalise their operating businesses and move away from an operating role, it is important the family office becomes independent and looks after the interest of the family’s next generation.
What part do non-family executives play in this evolution?
As family offices evolve, more non-family executives are inducted to bring in fresh and aggressive perspectives that would aid expansion and growth. This enables families to bring experts on board for areas where they lack understanding. However, this trend is slow as families are reluctant to use external advisers because adviser views often do not align with the views and intended direction of the family.
What are the future areas of investment focus for Indian family offices?
Fixed income and equities are currently the two most favoured asset classes. Looking to the future, families, on average, intend to invest more into equities, private equity, and developed market fixed income over the next 12 months and less into developing market fixed income, real estate, and hedge funds.
Do you see Indian wealth holders taking on more investment risk?
Family businesses typically have a conservative culture with many investment decisions being made by senior family members who have a low appetite for risk. The next generation could be the key [to an increased risk appetite] as they are beginning to see the benefits of taking a more growth-oriented strategy. The next generation is also likely to invest in wider geographical markets and facilitate growth by investing in innovative technologies. Increasingly, families must have a dynamic investment portfolio in order to raise capital and expand their business and also grow their personal wealth.
What do you see as the biggest challenges for Indian family offices?
There are five main challenges that I see: defining the role of the next generation in the family office, keeping the family office independent from operating businesses, preservation of family wealth while growing it, identifying new areas of investments to maintain healthy returns, and motivating the family office chief investment officer.
There is a strong requirement for education and guidance