MUMBAI: Nestled obscurely on the higher floors of plush commercial buildings across leading metros are small office ‘suites’ without name boards, that serve a growing number of super-rich in India. In fact, some of these offices — famously called ‘family offices‘ — manage family wealth that can match the assets of top companies such as Bajaj Auto, Cipla and Godrej Industries.
The country is home to 90 mammoth single family offices (SFOs) that manage private wealth in excess of $100 billion, according to an internal study conducted by Association of International Wealth Management of India (AIWMI). An SFO, loosely explained, is a firm that manages the personal wealth of one wealthy family.
“The numbers are growing steadily,” said Aditya Gadge, chief executive of AIWMI. “90 SFOs is not a big number for a country like India. There’s a lot of traditional business wealth here; all these would end in family office-like structure over the next few years. New-generation entrepreneurs would also add to the tally,” said Gadge.
Azim Premji (Premji Invest), Narayan Murthy (Catamaran Ventures), SD Shibulal, Kris Gopalakrishnan, the Burmans, the Sundarams (TVS family), Ajay Piramal, Qimar Rai Gupta family and Patni brothers, among others, keep some of the largest family offices in the country. Each of these SFOs is believed to have assets in the range of Rs 6000 crore to Rs 15,000 crore.
“Old business families are cashing out of their businesses… The money these families receive upon selling their businesses are channelled into their own investment firms or family offices,” explained Amit Patni, scion of the Patni family which once owned Patni Computers.
“Dividend payouts, partial stake-sales, public listing of shares, et al, are also increasing promoter wealth. All this money is flowing into formal family office-like structures,” said Patni. SFOs invest across asset classes and geographical boundaries.
Over 40% of the wealth is invested in equities — both private and publicly listed. Within equity, start-up investing is the latest fad among most SFOs.
Capital pools such as Narayan Murthy’s Catamaran Ventures is learnt to have (direct and indirect) investments in over 100 start-up ventures. Azim Premji’s Premji Invest has money parked in Flipkart, Myntra and Snapdeal. Ajay Piramal’s SFO is ploughing in as much as $50 million into Montane Venture, an early-stage fund, as its anchor investor. (See graphics) Apart from equity investments, SFOs also allocate money to real estate projects and real estate REITs and NCDs. Infosys co-founder SD Shibulal has invested in more than 700 apartments spread across Seattle and Bellevue area in the United States. Mutual funds and alternative investment vehicles (such as private equity funds, long-short funds) are also lapped by active single family offices. A few families also make good use of RBI’s liberalised remittance scheme (LRS) route to invest in overseas assets (mostly technology companies, real estate and commodities).
Under LRS, a resident Indian can invest up to $250,000 in overseas assets every year.
“Capital preservation and growth are important for family offices. To manage funds effectively, SFOs appoint dedicated investment professionals who are given broad directions as to how the fund should be managed. Generating returns is then the job of the wealth manager,” said Patni.
Promoters, who cash out of businesses completely, lay a lot of stress on capital protection. Many a time, familial discord or lack of interest to carry on business (especially among new generation) prompts families to cash out. The wealth accumulated by selling the business is managed diligently by professionally-managed SFOs.
“Family offices take care of almost everything, right from investments to tax planning, estate and succession planning.
People with reasonable assets would set up family offices and hire professionals to manage them,” said Deepak Natraj, managing director, Aarin Capital, the proprietary investment vehicle of former Infosys CFO Mohandas Pai and Manipal Group Scion Ranjan Pai.
“Family offices also help to weed out conflict of interest. Personal wealth and business wealth are clearly demarcated — and managed separately,” Natraj added.
While SFOs are the preserves of the rich, the not-so-rich can avail themselves of the services of multi-family offices (MFOs) to manage their wealth. MFOs take wealth management mandates from smaller families for a fee every year. There are close to 30 MFOs in India, reports AIWMI.
Credits ET Realty