How the next-gen of affluent families are managing their wealth

With the rise in ultra-wealthy families and the growing complexity of their opportunities, the demand for family offices is steadily increasing.

With the rise in ultra-wealthy families and the growing complexity of their opportunities, the demand for family offices is steadily increasing in India.

As per a June 2024 report by PwC India, there are over 300 family offices in India, as against 45 in 2018, and the number is set to rise exponentially, with promoters building impressive businesses in Tier 2 and Tier 3 cities.

According to experts, the uptick in family offices in India is replicating the trend that has happened in the developed markets.

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“It's a function of scale of the wealth in the society. When scale of wealth for certain families goes beyond a certain threshold, the need for having more control on deciding their investments arises. That need gets addressed by having your own family office,” said Rohit Sarin, Co-Founder of Client Associates.

As per PwC India, family offices are transforming into one-stop solutions, offering a wide range of services beyond wealth management. “They provide professional guidance on compliance, legal issues, taxation, investment strategies, and strategic decision making. This trend helps families streamline their operations and achieve their long-term goals,” PwC said.

While there is no standard portfolio size for creating a family office, some experts put the minimum investible sum at least at $100 million (around Rs 850 crore), while others put it at Rs 2,000 crore.

While these are the minimum requirements for setting up a single-family office, multifamily offices which manage wealth of more than one family, can also work with lower investible sums.

Some of the notable family offices include Burman Family Holdings, Premji Invest, Ajay Piramal SFO and Catamaran (Family Office of Narayana Murthy).

According to Prashant Joshi, Co-founder and Partner, Head - Family Office Investment Advisory & Private Wealth at Upwisery, a family office, is a set of advisers who sit on the client side of the table.

“They should have the capability not to innovate, not to manufacture, or source a new product. They should have a capability to evaluate the product with the lens of the family office or with the lens which says that this product is per the investment philosophy or investment policy statement as jotted down by the family. So, the difference is capability to evaluate multiple asset classes and the products that is the family office, rather than to manufacture, innovate, or source any product,” Joshi said.

Creating holistic value

With this evolution of family offices, the more affluent families are seeking sophisticated wealth management solutions and newer investment strategies even as the need for succession planning weighs heavily on ultra-rich Indians, many of whom happen to be first-generation entrepreneurs.

Amid the economic volatility, market volatility and geopolitical events, the families' first aim is to protect the wealth at all times. Once they have taken care of that, the next key aim is wealth generation by allocating into growth assets, which could be in the form of private debt and listed or unlisted equities.

Swati Saxena, Founder and Chief Executive Officer of 4Thoughts Finance says that when it comes to the young generation’s family offices, the investment thesis is not only about how to chase the index or beat the benchmark.

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“It is also to participate and get the best of what is available on the alternative side. If there are AI-led disruptions in the Silicon Valley, they would want to hunt Indian opportunities in the same area. The icing on the cake can be if this allows the investors to participate in the sustainability side or improving real lie issues on medical, education, sports, environment and so on,” said Saxena.

Need for thrill

According to experts a lot of family offices are bit thematic. Certain family offices only like to do unlisted equities or listed equities, while some will only focus on debt.

However, Kush Gupta- Director at SKG Investment & Advisory believes that unlisted space or private equity has picked up in a big way in the recent past, and has become sizeable investments in portfolios of some of the family offices.

“The current flavour is companies that are doing really well and are probably going to launch IPOs in 12 to 18 months. One of the biggest reasons is because the young generation wants to do something different. For example, if you had invested in Zomato before it got listed, then it becomes like a marquee investment. The young generation is going towards such companies because they are not generally available to the ordinary person and this investment is a bit more adventurous,” said Gupta.

According to Gupta, a lot of family offices have investments in the sports team Chennai Super Kings, exchange NSE and start-ups such as PharmEasy and Byju's.

The idea is that these families have already created generational wealth over a lifetime via old and established businesses. Now, these family offices have the ability to experiment as they have the luxury of a generational time span on their side.

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"The more assets you have, your access to products, information and your ability to reach out to third-party fund managers increases significantly. A lot of people are kind of structuring themselves and saying that we understand the power that a large AUM size gets because then you start getting access to more opportunities, which otherwise are not available to retail investor per se,” said Rahul Bhutoria Director and Founder Valtrust.

PwC India says that the family offices today have come a long way – from being an enabler boosting the financial wealth of families to building a resilient family enterprise; from supporting the family’s long-term goals by adopting an integrated strategy to being the custodian of the entire governance model, including the implementation of the family constitution and next-gen training.