Family Office: How do India’s ultra-rich invest?

A family office is an entity created by high net worth individuals to manage their money related matters including investments, inheritance, taxation and legal aspects.

At Mint’s Mutual Fund Conclave 2022, ‘Family Office: How to Invest for the Ultra-Rich?’ There was a panel discussion on how the Family Office and UHNIs are allocating their money. Amrita Farmahan, MD & CEO, Wealth Management, Ambit Pvt Ltd; Munish Randev, Founder and CEO, Cervine Family Office; Nikhil Chandak, Managing Director and Head Investments (Family Office), JM Financial Limited; and Nishant Agarwal, Senior Managing Partner and Head of Family Office, ASK Private Wealth; Discussed this and other trends in the private market investment space. Edited excerpts from the panel debate:

What is the investment objective of UHNI in India?

Nishant AgarwalConcerns and issues are related to wealth creation and accumulation, followed by transfer of wealth to the next generation. It is about leaving good legacy, contributing back to the society or creating institutions and businesses that are beyond one’s life span.

Munish RandeviThe complexity and the problems they face are very different. This includes making sure that the succession plan for their property is clear and clear for the next generation. In addition, they also provide for the worst-case scenario of bankruptcy of their businesses and how they and their family members can still maintain the same lifestyle for the next 5-8 years, at least till then. until they take a few steps on the ground. There is also a need to beat lifestyle inflation and eventually create more wealth.

In India, what is the typical minimum net worth when one can think of setting up a family office that works in favor of the head of the family in terms of cost-benefit analysis?

Nikhil ChandakiThe concept of family office has gained ground in India in the last 8-10 years. In Indian context, net worth is approx. 250 crores is something we would consider a family office.

Nishant Agarwal: For a family office, the cost of salary will easily come to approx. 2-3 crores annually for good analysts. This will double when other contingent costs are added. That cost can only be justified if you have a family office of about $100 million (the cost will be about 0.5-1% of the assets being managed).

Those with a lower AUM may consider a multi-office structure, which provides services similar to single-family offices, but at a shared cost, as the expenses will be distributed across multiple clients.

Which asset classes do UHNIs invest in?

Amrita FarmahanInvestment asset mix: The investment asset mix depends largely on the size of the family office and also largely from where the family office derives its income. For example, in the case of technology billionaires who made money from tech businesses, we find that a substantial portion of their wealth actually goes back to alternative and private markets, sometimes as much as 50-70%. There may be outliers in terms of assets. allocation; But, family offices, on average, maintain a balanced portfolio. Family offices are very visionary, investing in what is going to work in the next five to seven years is not necessarily what has worked in the past. We find that most family offices are open to exploring a range of investment opportunities including public markets with the largest allocations, private markets including unlisted companies, PE/VC funds, structured debt and stressed assets. In the past few years, hybrid assets viz. REITs and InvITs have seen reasonable allocation in the portfolio.

Does their need to preserve capital lead to a conservative portfolio?

Nishant Agarwal: On the contrary, actually. Investments in listed and unlisted stocks have increased inclination towards growth. In my over two decades of experience working with HNI families, the first trend I have noticed is that the overall affinity towards investing in real estate is slowly and steadily decreasing. Secondly, I have noticed an eagerness to search for property outside India. Finally, there is the openness to take measured and calculated risks through start-up, VC and alternative space investments.

According to the EY report, over 40% of family offices have doubled their allocation to private markets in the past five years. What is the reason for this increased interest?

Munish RandeviThere are mainly two or three reasons. One, due to the arrival of the next generation, who are educated abroad and who can understand the entire innovation ecosystem. They add their own flavor when they become active in the family office. Second, whether we are looking at venture capital or the private market, the private debt market space is more mature than it was five years ago and that creates a sense of comfort. And finally, on a lighter note, when one cannot discuss the latest product in a social gathering, the FOMO (fear of missing out) that comes with it brings people to invest in growing asset classes, which There is a private market in India. ,

Amrita FarmahanExit: One of the biggest problems in private markets in India in the last 10-15 years. In 2020-2021, the private markets matured and you start to get out. India has seen exits worth around $16 billion in 2021, which were either for public markets or secondary liquidity events. The exit provided visibility and that is why a lot of family offices saw it as a viable proposition to realize decent returns in a 7-10-year time frame.

In the private market, is the investment usually done at the initial stage or in the pre-IPO stage?

Munish Randevi: So far, the active part of the investment has been in the early stages or in pre-Series-A financing. This is because the ticket size is smaller at this stage. In addition, there will be many opportunities to exit from this point, starting with Series B and onwards.

Amrita Farmahan: The velocity of transactions will be high in the early stage, but the amount of money invested is relatively less as compared to the money invested in development/late stage assets.

In case of single family offices, do they prefer to invest directly in alternative asset classes or go for the fund/co-investment route?

Nikhil ChandakiI can speak for what we do. Our focus is straight on trying and doing it, but there may be different options. Each model has pros and cons. For a specific investment, if a specific domain of expertise is required, we collaborate with a number of private equity funds and venture funds that we have known well over the years and whom we can trust with their judgment. can. We also occasionally see opportunities where Venture Capital Funds and Private Equity Funds approach us to evaluate being co-investors. He believes that having a strong, respected and experienced name on the cap table will be an added advantage for start-ups to realize their full potential in the long run.

What global assets do family offices look at when it comes to international diversification?

Nikhil ChandakiThe US is by far the most preferred destination for global investment. From a standpoint of innovation, disclosure, global scale, transparency and ease of access to management, I think the US has scored the best. However, one has to invest within the LRS (Liberalized Remittance Scheme) limit of $250,000 annually. Another option (which is not available at the moment) is investing through the many index funds and ETFs launched by Indian mutual funds that invest in US equities.

Amrita FarmahanIn terms of property, real estate is one of the earliest investments, if not the first, globally. Indians UHNWIs have residential properties in places like UK, UAE and US. Family offices have increased their international allocation, recognizing inherent domestic bias, currency risk and technical disruptions. For example, companies in the digital and technology sectors, where there is no replication, have an automatic interest.

Nishant AgarwalThere is growing interest in investing to secure residency in overseas jurisdictions such as the US, Portugal and Dubai, which have investment-linked residency schemes.

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