When a young Indian movie actress recently sought professional help to prepare a financial road map to secure her future, she jettisoned chartered accountants and private bankers. Playing the starring role in sorting out her finances: A family office.
India's super rich - family business owners, entrepreneurs, celebrities and senior executives - are increasingly turning to family offices instead of private banks to manage their money. While banks can give investment advice, family offices act as one stop shops catering to all issues confronting the modern Indian business family, from succession and taxation to philanthropy and alternate investments.
"No one had even heard of this term [family office] 15 years ago, when I started my company, but now Indians are opening up to new ways of protecting and enriching their wealth," said Himanshu Kohli, whose multi-family office Client Associates currently manages US$3 billion (S$4.1billion) of assets on behalf of clients.
Globally there are 10,000 single family offices, with India accounting for around 200 of those in addition to a handful of multi-family offices, according to industry estimates. Families with more than 10 billion rupees (S$214.7 million) in assets usually set up their own exclusive single family offices. Others with 500 million rupees to 5 billion rupees may hire the services of a multi-family office, which looks after the interests of several families.
Wealth waiting to be managed
In India, family offices manage about 20 per cent of the total wealth in the country, which Credit Suisse pegged at US$3 trillion in its Global Wealth report 2016.
Wealth creation in India only accelerated after the economy was opened to the world in the early 90s, which explains both the fewer number of millionaires relative to the size of the population as well as the limited avenues for the rich to manage their wealth.
According to the Credit Suisse report, India has 178,000 millionaires compared to its Asian rival China, which has 1.6 million millionaires. Both countries have populations above 1.3 billion.
"I don't think we have even scratched the surface. Between 2003 and 2013, the ultra-high net worth segment [US$30 million and above] grew globally by almost 375 per cent, fuelled largely by China," Soumya Rajan, chief executive officer of multi-family office Waterfield Advisors told CNBC. She added that over the next 15 years, India will be doing some serious catching up.
While the Chinese economy is expected to slow owing to structural changes, "India's consumption linked story will drive wealth creation," said Rajan, who manages assets worth US$2 billion.
The deepening of capital markets, the maturing of local start-ups and a growing private equity industry, together with historically reticent family businesses in India becoming more open to share sales are going to create wealth like never before, which will need to be managed, experts said.
"India's rich need someone who is sitting on their side of the table, someone whom they can trust," said Rajan, "A family office pulls all services under one big umbrella so that the client is not repeating to five different people but is able to tell one person who knows the entire piece. There is also a question of confidentiality."
Handing over the baton
India's rich are not very comfortable talking about their wealth and winning their trust is a big challenge for the family offices. "The entire space is quite secretive," said Aditya Gadge, founder of Association of International Wealth Management of India. Gadge has been holding family office summits for the past five years to raise awareness around the idea.
Greater global exposure - rich Indian families now routinely go to American universities to take courses on succession planning - and the young inheritors are forcing families to loosen control and outsource certain aspects of their businesses.
"The next generation is going to be far more demanding of their time. They will want to have time to do the things they want [and not just run the business] and are not going to be pushed into things by their parents, if they can professionalise certain things they are going to do that, " said Rajan.
The big thing on the minds of most Asian and Indian families, say experts, is succession because over the next 10 years it is expected that about US$128 billion of wealth will transition from one generation to the next in India alone. And family offices hope to act as independent advisors to make that handing over of the baton as conflict free as possible.
Growing appetite for risk
While legacy planning is the main focus, family offices have also helped the ultra-high net worth population look at alternate, riskier investments to grow their wealth. Investing in art, wine and start-ups directly or through a fund is catching on and these investments together make up about 10 per cent of families' total portfolio, say experts.
"Patient capital to entrepreneurs or club investing wherein several families get together and invest in a company or project is getting popular," said Rajan.
The comfort with looking beyond Indian real estate and equity markets is increasing, said Kohli, adding that Indian families are now looking to invest in US equities and hedge funds.