In preservation mode

India’s super rich are going the family office way and here’s why

Published 6 years ago on Dec 18, 2018 3 minutes Read

It’s an open secret that the number of wealthy has only been on the rise over the past several decades. Weathering the worst of economic crisis of the century and political upheavals, the Indian wealth factory has produced more millionaires and billionaires at the fastest pace over the past decade.

While Kotak Wealth Management has been keeping a track of the wealthy, ultra HNIs, through its annual Top of the Pyramid report, Edelweiss along with Campden, has come out with a new report that takes a look at how increasingly business families in the country are creating a formal wealth management structure, popularly known as Family Offices. Based on 78 rich business families in the country, the Campden Family Connect estimates that there are about 45 formal family office structures in existence in India today.

Of the 78 super wealthy families surveyed for this report, nearly half (49%) have family offices, which are in the form of hybrid family offices — that is those embedded in the family business (22%). While that’s on expected lines given that a majority of the business families' fortunes are tied down to their businesses, an increasing number of families are professionalising their wealth management structure, either by setting up single family offices, as denoted by 19% of respondents, or establishing/joining multi-family offices as noted by 8%. The remaining families either do not use wealth management services (32%), take their wealth management advice from family or friends (18%), or they rely on external advisers (31%).

Again no prizes for guessing what are the favourite asset classes of the families. Over half (54%) of the families operate based on a balanced, preservation plus growth investment strategy. Fixed income is a favourite (28%), equities (26%), private equity (16%) and real estate (12%)). Looking to the future, over the next 12 months, families, on average, plan to invest more in equities, private equity and developed market fixed income, and less into developing market fixed income, real estate and hedge funds. Interestingly, only 1% is investing outside the country, with 99% building their fortunes on the shores.

Given the rising number of family feuds, 62% of families in India now have a succession plan in place. However, only 19% is written and formally documented with 14% simply verbally agreeing or informally written (29%). Over half (56%) of those surveyed reported that the next generation of family members currently hold family office/wealth management roles, while a fifth (20%) sit on the board. Roughly two-thirds (64%) said that they have a strong influence over the family business, while a notable proportion also claimed that they have strong influence over long-term investment decisions (57%) and the operations of the family office (43%). Yet, in the absence of a formal succession structure, we could see instances of family disputes cropping up in the future as the wealth kitty grows.