India is fairly new to the concept of family offices–an office that acts as a wealth advisor to families that own large businesses and helps manage and grow their personal wealth. But over the last few years, the concept has caught on and how.
A recent survey by Edelweiss Private Wealth Management and Campden Family Connect, a membership network for India’s ultra-high net worth community, shows that 58% of families who participated were interested in setting up or joining a family office.
The survey also showed that 50% of the families who responded were in the process of either setting up a family office or joining one. This survey was part of a research report titled ‘The Family Wealth Report -2018, a roadmap for the Indian family office’, India’s first report dedicated to family offices. The average assets under management of the family offices represented in the report are $318 million, while the average net worth of the families in $645 million.
“The concept of a family office… is still relatively nascent in India. With that said, Campden Family Connect estimates that there are currently between 40-45 formal family office structures in existence in India today,” the report said, highlighting the growing popularity of the family office here.
When asked about the reasons behind setting up family offices, 53% of the respondents said to add a layer of professionalism to the family business and investment structures while 44% said to help transfer wealth between generations and 38% mentioned co-investing opportunities as the reason.
However, a glaring gap pointed out in the report was with respect to succession plans put in place by these high net worth families. The report shows that 62% of respondents had some form of succession plan in place, but only 19% of these plans were written and formally agreed upon. Informally written plans comprised 29% of the total while verbally agreed plans were 14%. In light of these figures, the report went on to say succession planning needs to “remain in sharp focus”.
The report went on to say that fixed income and equities are the two most favoured asset classes for investments by family offices and that a keen interest in private equity or venture capital opportunities is also evident.
Another interesting aspect of the investments made by family offices that the report throws light on is that fact that India is the focus for the investments being made, with 99% families investing within the country itself. Among other destinations for investing were North America (14% respondents), Europe (11%) and Asia-Pacific (10%) while 7% invest in the Middle East and 5% in Africa.
The report also pointed out that the next generations in these families were coming into the fold, with 56% of those surveyed saying the next generation already plays a role in the family office.
Speaking about the report, Anshu Kapoor, head, private wealth management, Edelweiss, said, “India has about 150,000 HNW [high net worth] families with a cumulative net worth of $2 trillion. This number is expected to rise to 400,000 HNW families with a net worth of $5 trillion by 2025. We are witnessing openness from these families to the concept of a family office beyond traditional wealth management.”
Amit Patni, director, Campden Family Connect pointed out the need to raise more awareness around the need and the role of a family office structure. “The fact that there are only about 45 formal family office structures in existence demonstrates a dearth of understanding on the purpose and services offered by family offices,”he said.