How Family Offices in India Work? (Infographic)
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India has had a rich history of entrepreneurialism and family business. In 2018, India experienced the fastest growth across all of the world’s major economies, leading it to rank as the sixth largest economy globally. A great credit for this growth goes to the families and businesses that generate vast sums of personal wealth.
It is to be noted that the number of ultra-high-net worth (UHNW) individuals in India (having a total net worth exceeding $30 million) grew by 290 per cent between 2006 and 2016. It is predicted that this trend will continue with India producing more than 1,000 UHNW individuals each year over the next decade.
What Are Family Offices?
To manage such wealth emerges the need of entities like Family Offices. In its simplest form, a family office is a private office for a family with considerable wealth. These entities are said to be very private in their approach. Some of its functions include wealth management, investing, managing corporate and family governance issues, performing administrative and concierge duties.
However, the rapid expansion of UHNW individuals in India has led to a growing appetite for more efficient, effective and prosperous ways to invest money and manage assets. Fuelled by the desire to professionalize a family’s practice of investment, families are employing investment professionals who are savvy and skilled at operating across the different asset classes.
The external wealth managers are able to ensure that the people involved are getting the right advice with respect to investments & taxation, further enabling families to flexibly navigate changing tides, when needing to balance high and low risk investments. Edelweiss Private Wealth Management & Campden Family Connect conducted a research to analyze the roadmap for Indian family offices.
Edelweiss gathered qualitative and quantitative data from 78 UHNW families with an average net worth of $645 million and assets under management (AUM) USD $318 million for ‘The Family Wealth Report’. India is currently at an inflection point. As family run companies are transitioning from being localized to multinational players, the need to become professional institutions and develop an institutionalized mindset is intensifying.
The Current State
Anshu Kapoor, Head – Private Wealth Management, Edelweiss said, “India has about 150,000 HNW 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.”
The family office space is a massively growing industry, especially due to the GDP rate growing phenomenally. Many families selling their family business, resulting in vast amounts of liquid cash with no way to manage it. This generates the need for hiring wealth managers. Going forward, UHNI and HNIs will create over 50 per cent of India’s incremental wealth, feels Kapoor.
“A large majority of entrepreneurial enterprises in India are family-owned; add to this the growing trend of new-gen entrepreneurs incubating and eventually exiting their startups. Family Offices are also likely to provide capital, expertise and opportunity to not only the entrepreneurial ecosystem but also to areas like philanthropy,” he said.
Let’s take a look at the following infographic by Edelweiss Private Wealth Management to get a clear idea of how family offices operate in India: