Family Offices come of age as the count of ultra-rich grow in India. Rajmohan Krishnan of Entrust Family Office that manages Nandan Nilekani's wealth says trend to increase.
The number of super-rich in India grew 290 percent over the last decade. According to the Frank Knight Report, India ranked sixth in the growth rate of high networth individuals in 2016.
The report indicates that the “pace of adding ultra High Networth Individuals (HNIs) — people with net worth of over $30 million — is expected to move up to the third spot in the next decade.”
During the period of 2015-2016, around 500 new ultra HNIs were added annually in India. Over the next decade, it is likely to increase to 1,000 every year.
In such a scenario, the question to ask is how do these rich individuals manage their money. Gone are the days when business families stuck to safe investment bets. Today, the next generation millennial millionaires are keen to see their money not only earn more money but also do good for a larger cause.
That’s where the work of the Family Office (FO) begins. A concept first introduced in the 19th century by the Rockefeller family in the US, FOs are personal wealth management firms of the ultra-rich.
There are approximately 200 FOs in India today managing about 20 percent of the total wealth in the country, which Credit Suisse pegged at $3 trillion in its Global Wealth Report 2016.
Rajmohan Krishnan, Co-founder of the Entrust Family Office, says, “More and more families are either setting up their own Family Offices or engaging with Multi-Family Offices to manage their wealth. Considering the increase in wealth in the last decade or so, the research findings are true.”
Rajmohan’s Entrust Family Office manages approximately $1150 million on behalf of clients, including Nandan Nilekani’s. Founded in 2013, Entrust Family Office is one of the earliest SEBI registered investment advisory firms in India. It provides services across succession planning, corporate trusteeship, bookkeeping, property management, and philanthropic services.
Betting on startups
Recently, many Family Offices like Artha India Ventures, Catamaran Ventures, Premji Invest, and RNT (Ratan Tata) Associates, and others have shown a great appetite for high-risk investments and have betted on startups. However, of the nearly 200 FOs in India, only about 15 to 20 are investing in startups.
Talking about the challenges that wealthy families face while considering alternative investments like venture funding in startups, Rajmohan says,
“Startup investments come from allocation to risky capital as part of asset allocation and this can’t be more than about 10-15 percent of the overall corpus. Unless the portfolio size is very large, the 10-15 percent will be very less to invest and participate in the growth.”
In his opinion, $15-20 million should be the minimum corpus allocation to startup investing.
Family Offices are still very nascent in India. Rajmohan, who was one of the founding members of Kotak’s Private Banking business, leading the North and South India regions till 2012, believes even though FOs have actively been in existence for the last 10-12 years, people’s understanding of the term is still clouded.
A cluster of institutions, banks, and investment managers offering FO services along with wealth management business is a flawed model and confuses clients. Rajmohan says, “We have been evangelising the non-conflict FO offering as and when an individual or family’s wealth and activities associated with wealth reaches overwhelming levels. The point to be noted here is that the quantum of wealth does not matter -- it is the overwhelming nature of wealth which is. And the need for FO services is only going to go up with the growth of wealth and its related complexities in the future.”
At the fifth annual prestigious Family Office Summit India held in September this year in Mumbai organised by the Association of International Wealth Management of India, HNIs and FO executives, private investors, and thought leaders deliberated on pressing issues and challenges that the ultra-rich face when it comes to their wealth. Besides investment of their money, there are concerns about succession plans and how to conduct philanthropic activities.
In fact, it is only in recent times that the ultra-rich are looking at indulging in philanthropic activity in an organised manner as is done in the West. Azim Premji, who has been leading an informal effort with like-minded peers to promote philanthropy, had remarked in 2015 that there are two reasons why wealthy Indians don’t give as much as Americans. “One, their families are much larger in terms of wealth sharing. Two, a majority of Indians who are wealthy believe that they must leave their entire money as an inheritance to their children.”
So, how differently do the ultra-rich think of money than an aam admi. Sharing some of his secrets, Rajmohan says,
- High Net-worth Individuals want money to be perpetual - to safeguard, grow, and transfer to the next generation.
- For majority of HNIs, money is a means to an end. They want to use it in a way that benefits society. Increasingly, HNIs are moving towards giving back to the society in various ways, be it through pure philanthropy of through social investments.
- Money for HNIs is thought of for preservation and for growing. While preservation happens through investing, growth happens through investing in businesses, startups, and also mentoring them to grow into larger success stories.