Wealth management in India has undergone a transformational shift with the rising prominence of family offices who cater to the HNIs and UHNIs. The concept of family offices has not only redefined private wealth management but also impacted investment trends and overall economic growth.
Is it a new trend?
The concept of family offices dates back centuries, with early examples found among European aristocratic families managing their estates and wealth across generations. The modern concept family offices act as independent entities serving multiple affluent families emerged in the West in the more developed markets; however, over the years, it has seamlessly been adapted in the Indian family business context.
Traditionally, Indian family offices meant family-owned enterprises and their personal wealth. However, now with globalization, there is a profound transformation in governance and the structure of businesses – taking decisions, managing family assets etc. With more professionalism, there is a structure, or a charter created to ensure consolidated ownership, transparent holdings and seamless transition across generations, duly protected against contingencies.
Legacy building
The primary purpose behind establishing a family office, formerly known as a family investment vehicle, was to establish a mechanism for succession planning and the equitable distribution of wealth among future generations within the extended family to ensure minimizing potential disputes. In addition to financial planning and investment management, family offices offer estate planning, tax optimization, philanthropy, and more.
Mindset of Traditional Business Families Vs First Generation Entrepreneurs
Generational wealth has been managed by some legacy thought process. First-time wealth owners may have created that wealth by way of taking risks, including putting their own money to start a venture. So, they understand risk very differently. They are more growth-oriented whereas the traditional families are more protection-oriented. But having said that, even within business families, the younger generation who is now entering the business has a higher risk appetite.
Growth Factors
India probably has around 300 family offices, with average AUM of 100 million USD. Projections say there will be over 1,000 family offices in India with a growth in Tier 2 and 3 cities. Some of the factors leading to this growth are:
· Global Influence – Global trends are inspiring family-run businesses to professionalize the way their assets are managed.
· Increase in Losses – Traditional businesses underwent several financial losses due to lack of control on their investments.
· Investment Diversification – Families are now looking at investing their wealth in different asset classes - real estate, fixed income funds, hedge funds, equities, and private equity.
· Structured Processes – Families are looking at having the ability to analyze their investment portfolio to improve performance.
My take
With the growing number of HNIs and UHNIs and acceleration of wealth creation, the future for family offices is promising yet dynamic. However, it will be important to be aware of the hindrances such as the growing accounting and reporting complexities, family conflicts, data security, keeping pace with technology, changing regulations and having the right talent.
While some may view family offices as a passing trend, I believe that their deep-rooted focus on long-term wealth preservation, multigenerational planning, and personalized services are here to stay.
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