Family offices are becoming increasingly popular among India's growing ultra-wealthy population, reports Pedro Gonçalves.
If in the early 2000s the concept of a family office was barely know, as India got richer, it was only a matter of time for this segment of private wealth management to flourish as wealthy Indians started shifting from traditional assets such as gold and property to financial services.
The number of family offices in India is expected to soar to around 1,000, according to Aditya Gadge, founder of the Association of International Wealth Management and CEO of Priwexus.
The rapid extension of UHNWIS in India has led to a growing appetite for more efficient, effective and prosperous ways to invest money and manage assets" - Aditya Gadge, founder of the Association of International Wealth Management
"Fuelled by global trends and a desire to further professionalise a family's practice, families of great wealth are starting to set up family offices as vehicles through which they can invest their wealth into different asset classes such as equities, private equity, real estate, fixed income and hedge funds," the report added.
According that report, which surveyed 78 wealthy families in India, practically half (49%) rely on family office services. Of the respondents using family office services, 19% have established single family offices that are independent of the family business, while around 8% have established or are joining multi-family offices.
Of the remaining 51% who do not use family offices, 32% said they simply do not use wealth management, or they take their wealth management advice from family or friends (18%) or rely on external advisers.
Traditionally, European and American families have dominated the global office space, However, India's family office scene can no longer be ignored.
Increasingly, India's rapid increasing population of UHNWIs have started to set up their own family offices to manage and grow their wealth and create a lasting legacy for future generations.
The tide turned when Uday Kotak, the eight- richest person in India, announced last year that he was setting up a family office to invest his $10bn fortune. Up until then, India's wealthy preferred to reinvest any profits they made back into the family business. Avoiding risky ventures was the rule.
However, this boom is still in its early stages. There are only around 45 family offices in India. That figure is a far cry from an estimated 5,300 single family offices worldwide, according to theFamily Wealth Report 2018: a Roadmap for the Indian Family Office published by Campden Research in partnership with Edelweiss.
"The rapid extension of UHNWIS in India has led to a growing appetite for more efficient, effective and prosperous ways to invest money and manage assets," the report said. Over the next five years
The average assets under management of the family offices represented by the report stands at $318m, with that number almost doubling to $645m when looking at the average net worth of the families.
The report also looked at the wealth transfer and found that around 62% of families in India now have some form of succession plan in place.
If succession planning is usually a difficult subject to touch in most countries, It is even harder in India. With very few patriarchs wanting to discuss it, stories of in-fighting in some of India's largest high-profile families are not uncommon.
Of those with a plan for the future, only 19% had a written and formally agreed succession plan. The remainder are either simply verbally agreed (14%) or informally written (29%).
Reports by Credit Suisse and Kotak Wealth estimate India has more than 55 dollar billionaires and 622 tycoons with a fortune between $100m and $1bn. Experts estimate India's wealth managers to be dealing with a $2trn market.
"India has about 150,000 HNWI families with a cumulative net worth of $2trn. This number is expected to rise to 400,000 HNW families with a net worth of $5trn by 2025. We are witnessing openness from these families to the concept of a family offices beyond traditional wealth management," Anshu Kapoor, head of private wealth management at Edelweiss, said.
Families are not putting all their eggs in one basket. By investing in startups working on new technologies like AI, traditional families get to stay updated and are not taken by surprise when the latest wave of innovation hits the market.
Some of India's wealthiest families have decided to take the international plunge as the country braces for an impending decade of wealth transfer. Singapore and Hong Kong seem to be the destinations of choice. Both offer a robust financial services sector and competitive corporate tax rates of 17% and 16.5% respectively, making them appealing locations for setting up family offices. India, charges a corporate tax rate of 30%, with a reduced rate of 25% for firms with an annual turnover of less than $34m.
As dramatic changes are taking place in India's corporate culture, family offices are helping local tycoons protect their personal wealth and stay ahead of the times by investing in cutting-edge new economy businesses.
Pedro Gonçalves is International Investment's financial correspondent. This article first appeared in our special report on family offices, in July.