What Is A Family Office?
A Family office is an exclusive advisory firm specialising in the management of the substantial wealth of affluent families. They are privately-owned entities dedicated to the growth and intergenerational transfer of family assets of ultra-high-net-worth individuals (UHNIs).
There are around 300 family offices in India with average assets under management (AUM) of $100 Mn.
What Are The Types Of Family Offices?
There are essentially two types of family offices – single family office (SFO) and multi-family office (MFO)
A SFO focusses on overseeing the wealth of a single family, whereas a MFO caters to the financial needs of multiple wealthy families.
The scope of SFOs is wider as they cater to the needs of an entire family, while MFOs provide a more limited range of services and concentrate on essential professional skills like financial and investment management, legal advice, and trust and company services.
What Are The Services Offered By Family Offices?
Family offices in India offer following services:
- Wealth Management: Family offices provide comprehensive management of assets and investments for UHNIs.
- Financial Planning: Creating customised plans for financial goals and risk management.
- Estate Planning: Strategies for smooth wealth transfer across generations.
- Tax Advisory: Optimisation of tax positions and compliance with regulations.
- Philanthropy & Social Impact: Family offices often support families in their philanthropic endeavours. They provide assistance in charitable giving and societal contributions.
- Legal & Compliance Services: Advice on legal matters and regulatory compliance.
- Risk Management: Identification and mitigation of potential risks to wealth.
- Lifestyle & Concierge Services: They provide personalised assistance with daily tasks and lifestyle needs.
- Family Governance: Establishment of frameworks for decision-making and succession planning.
Who Typically Uses A Family Office?
Family offices in India are typically utilised by wealthy individuals and affluent families who have substantial financial resources and complex financial, investment and personal requirements.
For instance, let’s look at Reliance Industries Ltd CMD Mukesh Ambani’s family. The Ambani family is one of the wealthiest in India and has diverse business interests in sectors such as petrochemicals, telecommunications and retail.
The Ambani family office provides them with a dedicated team of professionals who assist in managing their investments, optimising their tax positions, managing philanthropic activities, among others.
How Much Does It Cost To Establish And Run A Family Office?
According to CitiBank, expenses associated with a family office typically range between 1% to 2% of the family’s total active assets, encompassing investment portfolios, trust assets, and liquid assets.
For example, if a small family office manages active assets worth $100 Mn, its estimated annual cost would be approximately $1 Mn to $2 Mn.
How Does A Family Office Differ From A Traditional Wealth Management Firm?
The key distinction between a family office and a wealth management firm lies in their client focus. A family office serves one or a small number of UHNI families, offering personalised and comprehensive services tailored to their specific needs.
On the other hand, wealth management firms cater to a broader clientele comprising several affluent investors, providing more standardised services to meet their financial goals.
What Role Do Family Offices Play In Startup Investments?
As startups gain recognition as a lucrative asset class, traditional family offices are embracing the trend and allocating a portion of their portfolios (typically around 10%-20%) to startup investments. According to a 2021 report by 256 Network and Praxis Global Alliance India, family offices invested over $5 Bn in Indian startups in the last few years.
There are several reasons behind family offices increasing their investments in Indian startups. First, the Indian startup ecosystem is maturing and there are a number of promising startups with soaring valuations (read unicorns) that are attracting the attention of family offices.
Family offices are also looking for new investment opportunities, and startups offer the potential for high returns. Besides, they are looking to back new generation entrepreneurs who have the ability to bring disruptive technologies in traditional sectors.
Among the major family offices in India, RNT has made investments in ventures such as Car Dekho, Ola and Snapdeal, while PremjiInvest’s portfolio includes brands such as Flipkart, Snapdeal and Lenskart.
How Are Family Offices Different From Venture Capital Funds?
Family offices and venture capital investors differ from each other primarily in their investment horizons. Venture capitalists typically operate within a 10-12 year investment cycle, focussing on building a portfolio of potential high-growth startups. On the other hand, family offices provide capital that can be considered perpetual or evergreen with no typical investment cycles. This lack of time constraints benefits startup founders by reducing the pressure to deliver quick returns.
In addition, venture capitalists often engage in public activities and compete for deals, drawing public attention to their investments. Family offices, however, bring confidentiality and discretion to the table, allowing for a more private and tailored approach to investment.
How Can Startups Reach Out To Them For Investments?
As a startup founder, reaching out to family offices for funding can be a valuable opportunity to secure the capital you need to fuel your growth. Begin by conducting thorough research to identify family offices that have a track record of investing in startups similar to yours.
When reaching out, craft a compelling pitch that clearly communicates your business model, market opportunity and potential for success. Tailor your message to each family office, showcasing your understanding of their investment preferences and values. Your pitch should also include the scope of your business plan, how you are going to utilise the funds, and the indicative returns for the family office.
