A well-known businessman in his 30s exited a technology business at the peak of the tech bubble in 2000 with about ₹400 crore post-tax wealth. Instead of going with one professional to manage his wealth, he hired 10 investment bankers and told them he would invest more funds with those who would give fresh investment opportunities and meet him frequently. He promised to increase the share of those with highest returns. Himanshu Kohli was one such banker representing a foreign investment bank. "The client's multi-banker approach backfired when the tech bubble burst. Daily/weekly meetings turned monthly. Later, every banker disappeared, but to some extent, the client was at fault, too. He should have taken a holistic approach," says Kohli. The incident stayed with Kohli, who later established Client Associates, a multi-family office to help business families manage their wealth in a holistic manner.
On the other side of the spectrum is the Patni family. Long before they sold Patni Computer in 2011 in a $1.2 billion deal, they had the foresight to separate business wealth from family wealth and set up a family office, RAAY Global Investments, in 2002. "We hired a CIO and a team under him to put in place a proper system along with back-office support. The idea was to have a self-owned single entity to take care of all aspects from investments, trusts, tax planning and estate planning to philanthropy. We also launched VC funds to anchor investments in other businesses," says Amit Patni, director, RAAY Global Investments.
Or take the case of two of Infosys' prominent co-founders. Catamaran Ventures, launched in 2016 to take care of N.R. Narayana Murthy's private investments, has made 25 investments so far, including gaming platform Loco. Other investments include Udaan, NSE, Reddit, Acko, Udemy and Paperboat. The company manages over $1 billion across asset classes in sectors such as e-commerce, technology, financial services, consumer goods, healthcare and education. Similarly, Innovations, the family office of S.D. Shibulal and family, not just acts as a custodian for long-term asset protection and growth but also takes care of philanthropic and social activities along with nurturing entrepreneurship. It is active in start-up funding and education through Axilor Ventures (seed fund) and Vidyadhan (scholarship programme). Innovations has also invested in Tamara Leisure Experiences, the hospitality venture of Shibulal's daughter.
The Mariwala family has set up a family office, Sharrp Ventures, in 2015 for diversifying investments. "My father, being a true entrepreneur, would plough back all money in Marico and Kaya. I went to him with a proposal that we should also invest in businesses outside of what we do. This is how Sharrp Ventures started," says Rishabh Mariwala, co-founder and director, Sharrp Ventures. The five-member team, including Mariwala, manages family wealth of about $450 million.
Managing big wealth is serious business. And nothing underlines the role of professionals to manage the money of the rich better than the rise of family offices. The swelling number of rich will add to their heft. According to World Wealth Report 2021, India recorded a 5.9% jump in population of high net-worth individuals (HNWI) in 2020 at 278. Various reports suggest the number may hit 10,000 by 2024 with cumulative wealth of $700 billion.
Not only traditional businessmen, serial entrepreneurs, even celebrities from showbiz and cricket, are tapping opportunities in private transaction or unlisted space with or without family offices. For example, Deepika Padukone has a family office, KA Enterprises, while Yuvraj Singh has YouWeCan. Oyo founder Ritesh Aggarwal's family office is called Aroa Ventures.
What's a Family Office
Business families are realising that while the core business is important, how funds generated from there are managed matters, too. The question of how much to invest or plough back in the business and what percentage kept for family is not easy to answer. The rich also need succession planning so that family wealth can be preserved for the coming generations.
Family office, which takes care of wealth for each family member, manages corporate and family governance, succession planning, immigration, taxes, and also provides legal advisory, travel, immigration and other services, can be a one-stop solution for all family matters. "Other services that are offered, but to a lesser degree, include family counselling/relationship management (44%), administrative services (42%), and concierge and/or security services for family members (24%)," says Edelweiss Wealth's Family Office report.
There are two types of family offices. Single-family offices such as Burman Family Holdings (Burman family), Catamaran Ventures (N.R. Narayana Murthy), Sharrp Ventures (Mariwala family) and Premji Invest (Azim Premji), and multi-family offices for those who may not need full-fledged single-family office. Multi-family offices like Cervin Family Office, Client Associates, ASK Wealth Managers and Entrust Family Office provide all the required services; the family doesn't have to build its own team.
Who Needs It
The fear of missing out is also pushing business owners to set up family offices even when they don't need it. "Promoters confuse family wealth with family office, which is not the same," says Aditya Gadge, founder & CEO of Priwexus, an Indian private wealth network.
Family office is more about handling complexities than wealth. You may have a simple big family business or a small business with a lot of complexity. The former may not require a family office. "Suppose you have two children with clear division of wealth and responsibility. Even if you have billions of dollars, you don't need a family office but an investment division. Then there could be a family with about ₹500 crore wealth and 15-16 family members trying to do different things. They require a family office," says Gadge.
Some get this. Entrepreneur Ronni Screwvala's family office only has a philanthropic and investment division. Rishabh Mariwala's Sharrp Ventures focuses on investments. Azim Premji's Premji Invest primarily supports philanthropic initiatives of Azim Premji Foundation. "We invest in public and private markets across industries," says a spokesperson for Premji Invest.
Munish Randev, founder and CEO of CERVIN Family Office, says a family with ₹100 crore and more financial capital needs family office. Industry players say a single-family office is needed if liquid wealth is more than ₹2,000 crore. "Setting up a decent family office would cost ₹8-12 crore per annum. This is not justified for a portfolio of ₹200 crore," says Kohli of Client Associates.
Team quality and continuity also matter. For example, a promoter set up a single family office where five out of six professionals had only sales experience. "The promoter had no idea that corporate bankers and mutual fund distributors are not experienced in wealth management. Hands-on investing experience is most important in an internal investment team," says Randev. If a single-family office doesn't offer meaningful work or intellectual stimulation, the professionals may move on. Such things can be avoided by opting for a multi-family office which can manage both investment and non-investment needs.
Investment Preferences
Investment preferences of business families are hardly different than what smaller investors want even though their pool of money is bigger. Old-generation conglomerates prefer real estate and fixed income assets. However, financialisation has grown as second and third generation take reins. Even private investment is picking pace. Rishabh Mariwala has earned 66 per cent IRR from unlisted investments since Sharrp Venture's inception in 2015. Key deals include Nykaa, Mamaearth, Healthkart, Bira and MCaffeine.
According to Client Associates, Family Offices have been participating in 50-plus deals in a year. "Private markets remain an alternative of choice with allocations to start-ups and VC funds comprising 18% of the pie. This is quite aggressive when compared to 15% allocation to other alternatives, 20% to fixed income and 36% to listed equities," says a report from a survey of 100 family offices by EY and LetsVenture's Trica. "With over 40% respondents doubling allocation to private markets in past five years, the interest of larger cheque writers in direct participation in startups' capital tables is increasing. Respondents' private market portfolio comprised 47% direct start-up investments, 32% exposure to PE/VC funds and 11% to venture debt funds," adds the report.
The CIO's job is not easy. Sometimes he needs to raise the red flag to the business owner's investment preferences. "We can't be yes men. For example, a lot of clients asked us to invest in cryptos or other glamorous products because their friends and acquaintances were doing so. We explained the risks but not all agreed," says Randev of CERVIN Family Office.
Family offices keep a check on spending habits too. "Most families get astonished when they take stock of their expenses. Sometimes we even have to highlight why they shouldn't buy a ₹1-2 crore car every year or go on a lavish vacation of ₹2 crore or buy diamond on every other occasion. If there are risky patterns, we highlight them. It's up to them to follow," says Randev.
Family businesses are getting serious about not just investments but also preservation, transfer and growth of wealth. "They are moving from desktop-era excel sheets to a proper accounting, treasury and wealth management system that helps them analyse their portfolio scientifically. We closely work with India's well-known family offices such as HCL Family Office and Burman Family Office and are in discussion with a few more," says Chandra Mohan Grover, MD & CEO, IBSFINtech.
John D. Rockefeller may have popularised the concept in the West but Indian elites always had "munshijis" to manage their wealth. The 200-odd family offices are the natural evolution of that role handling far greater complexity and wealth.