The evolving landscape of Indian Family Offices
- Indian next-gen leaders are moving away from solely family-managed wealth, hiring external professionals for investment management, legal advice, and governance.
- The investment focus is moving from real estate and gold towards early-stage startups, private equity, and international assets.
- The next generation is integrating social and environmental values, increasing investments in sustainable ventures and impact investing.
The concept of family offices existed in India since ancient times when specialised wealth managers known as Nagar Seth used to manage the corpus of high net-worth families. However, in its modern form, the family office emerged in India during the early 2000s. Initially, only a handful of ultra-high-net-worth families (UHNIs) established dedicated family offices, which were typically modelled after their Western counterparts. Eventually, fuelled by the Indian economic growth, the increase in the number of UHNIs led to a gradual rise in the establishment of single-family offices. Beyond the traditional private banking relationships, the adoption of more formalised wealth management structures appealed to families as they sought to preserve and grow wealth across generations. By 2023, there were over 250 family offices in India. This growth was powered by the rise of entrepreneurial wealth as business families seized new opportunities to expand their businesses.
A prominent phenomenon that characterised the growth of Indian single-family offices (SFOs) in the last 15 years, was the active involvement of next-generation family leaders. Equipped with world-class education and developed market experience with large corporations in the West, these next-gen leaders have brought in a paradigmatic shift in the operations and management of Indian family offices.
Embracing professionalisation: From in-house to expertise-driven
One of the most significant changes witnessed by next-gen-led SFOs in India is the move away from solely family-managed wealth. SFOs are increasingly recognising the value of external professional expertise. There is an increased focus on specialised capabilities in investment planning and strategy execution. SFOs have hired highly qualified investment managers with proven track records, legal professionals specialising in wealth management, and governance specialists, to ensure informed investment decision-making. This is exemplified by Amit Patni-led RAAY Investments, the SFO of the Patni family, and Rishabh Mariwala-led Sharrp Ventures, the SFO of the Mariwala family. Indian SFOs are also building in-house expertise in venture capital (VC) and private equity (PE) investments, which traditional business families usually lack. Professionals brought in from the financial industry are helping the SFOs adopt best practices in managing investments and family wealth across different asset classes. This shift has brought professionalism and systematised decision-making in next-gen-led Indian family offices.
Diversifying investment strategy: shift beyond traditional asset classes
Armed with global exposure and fresh perspectives, the next-gen leaders are transforming how their family wealth is managed and deployed. The traditional focus on real estate and gold is giving way to a more diversified investment approach. Riding on India's booming startup ecosystem, the next-gen led SFOs are investing in early and growth-stage start-up firms. SFOs are also investing in private equity, international stocks and bonds, and other promising investment opportunities in sunrise sectors across the world. Aiming at a mix of stability and potentially high returns, SFOs are diversifying portfolios with international assets to hedge against local market volatility. Several SFOs such as those led by the next-gen leaders in the Burman and Mariwala families (owners of FMCG firms, Dabur and Marico respectively), have reaped handsome returns from their early-stage investments in various start-ups.
Institutionalising governance: formalisation of structures
The next-gen-led SFOs are undergoing a governance transformation as they aim to build a lasting legacy for the future. Their focus has been on institutionalisation and establishing structured governance mechanisms for the SFOs. Next-gen-led SFOs are adopting well-defined governance policies and procedures for the planning and execution of investment strategies, risk management, compliance, and ethical standards. Clear communication channels, well-defined roles for family and non-family members, family governance policies, and family constitution norms are being established and implemented to ensure sustainable wealth management, smooth succession planning, and avoidance of conflicts. They are employing governance specialists to help them formalise structures and processes that strengthen the interfaces between the family, business, and SFO. Transparency has improved in reporting to the family and other stakeholders. This has built trust in the family in the next-gen leadership and their wealth management capabilities.
Employing technology as an enabler: focus on innovation
The next-gen leaders belong to a tech-savvy generation. They are employing technology to enable institutional changes in their SFOs. Advanced technological tools are being adopted at Indian family offices to streamline operations and improve data analysis for decision-making. SFOs are leveraging technology for workflow automation to do away with repetitive tasks of data entry and portfolio reporting, freeing up human capital for strategic analysis. Investment decision-making at SFOs such as Sharrp Ventures (led by Rishabh Mariwala of Marico group) and Premji Invest (led by Rishad Premji of Wipro group) is increasingly becoming data-driven. Advanced analytics platforms are being used to identify market trends, evaluate potential investments, and measure performance. Technology adoption has also helped to enhance communication within the family office and with the family, external advisors, and other stakeholders.
Adopting values-driven investing: sustainability and impact
The next-gen leaders are integrating their social and environmental values into investment decisions. They are investing in sustainable businesses that focus on clean energy, resource efficiency, and social responsibility. There is a growing interest in the environmental, social, and governance (ESG) criteria, with investments being made in socially responsible and environmentally conscious, sustainable ventures. Next-gen leaders are also reshaping family philanthropy by adopting a more strategic approach toward giving and measuring the impact of their charitable contributions. The next-gen-led SFOs have increased their focus on impact investing with sustainable and long-term growth strategies that balance financial returns with environmental and social considerations.
Future challenges and opportunities: the way forward
Looking ahead, the Indian family offices face a mix of challenges and opportunities. Striking a balance between the risks and rewards of high-risk alternative investments like venture capital, private equity, and cryptocurrencies, will require developing specialised expertise and talent. Geo-political tensions, economic fluctuations, and market volatility would necessitate devising robust risk management strategies. Adaptation to rapid changes in technology, regulatory compliance requirements, and financial market trends will demand continuous learning and agility. The ability to manage evolving family dynamics will be a key factor in the future success of SFOs. Integrating professionalisation efforts while safeguarding family interests would demand transparency in decision-making. Especially, in multi-branched families with complex relationships, communicating frequently and providing clarity on strategic decisions affecting family wealth management, would help preserve family harmony.
The future of Indian family offices is bright, marked by innovation, collaboration, and a focus on long-term wealth preservation in alignment with the values of the next generation. Buoyed by the future economic growth prospects, the next generation of Indian SFO leaders is ushering in a new era of wealth management. Their focus on professionalisation, good governance, diversification, impact investing, and strategic philanthropy, is transforming the family office landscape in India. As they navigate the challenges and opportunities, the next-gen leaders are poised to build a strong foundation for their family offices, sustaining family wealth for generations to come.
Navneet Bhatnagar is Assistant Professor (Strategic Management) at the Indian Institute of Management Raipur, India, and Chair-Asian Circle of Family Firm Institute, Boston.
Kavil Ramachandran is Professor of Entrepreneurship (Practice) and Senior Advisor, at the Thomas Schmidheiny Centre for Family Enterprise, Indian School of Business, India.
