BUSI­NESS BE­YOND WEALTH

The rise of fam­ily of­fices is re­defin­ing how rich and fa­mous In­dian busi­ness lead­ers man­age per­sonal wealth and other fam­ily matters.

Business Today - - THE BUZZ - By E Ku­mar Sharma Il­lus­tra­tion by Raj Verma

The rise of fam­ily of­fices is re­defin­ing how rich and fa­mous In­dian busi­ness lead­ers man­age per­sonal wealth and other fam­ily matters.

Con­sider an im­por­tant find­ing of the Credit Suisse Re­search In­sti­tute’s Global Wealth Re­port 2017. Only a small frac­tion of the pop­u­la­tion in In­dia ( just 0.5 per cent of adults) have a net worth of over $100,000 but, given In­dia’s size, even this small per­cent­age trans­lates into 4.2 mil­lion peo­ple. Equally sig­nif­i­cant is the find­ing that the coun­try has 340,000 adults in the top 1 per cent of global wealth hold­ers.

So, how do these peo­ple, many of them founders of com­pa­nies, han­dle this per­sonal wealth that they have as­sid­u­ously built? How do they en­sure that it does not get eroded and is not just pre­served and grown but also smoothly trans­ferred to the next gen­er­a­tion? All of this, while also keep­ing in­tra-fam­ily dis­putes at bay. This is best done by set­ting up fam­ily of­fices, a class of en­ti­ties that have emerged and grown in In­dia over the past decade.

Rise of fam­ily of­fices

So, what ex­actly is a fam­ily of­fice? A true-blue fam­ily of­fice man­ages a busi­ness fam­ily's matters end to end. Gopal Srini­vasan, Chair­man and Manag­ing Direc­tor of TVS Cap­i­tal Funds, a mid-cap growth eq­uity fund, points out that a clas­si­cal fam­ily of­fice is ac­tu­ally a six lay­ered operation. It in­cludes a wing that deals with the fam­ily busi­ness and is re­spon­si­ble for cor­po­rate ac­tions, par­tic­i­pa­tion of the fam­ily in boards and busi­ness coun­cils, de­ci­sions on in­vest­ment and di­vest­ments of the hold­ing com­pany. The sec­ond di­vi­sion deals with suc­ces­sion and man­age­ment and deals with all the le­gal is­sues re­lated to plan­ning and suc­ces­sion. Then, it is tasked with groom­ing and on­board­ing of the next gen­er­a­tion, and ca­reer plan­ning for them. An­other role is fam­ily wealth man­age­ment. They also help pro­mot­ers take a call on new busi­ness ven­tures and, fi­nally, of­fer sundry ser­vices to the fam­ily such as travel or ed­u­ca­tion.

“To­day in In­dia, the fam­ily of­fices are still very in­vest­ment-ori­ented but there are fam­i­lies grap­pling with larger suc­ces­sion is­sues, which is why they cre­ate a fam­ily of­fice and that fam­ily of­fice then helps to es­tab­lish a fam­ily board, cre­ate a fam­ily con­sti­tu­tion so that the val­ues of the fam­ily are pre­served. In the con­sti­tu­tion, it spells out how con­flicts, in case they arise, are re­solved,” says Soumya Ra­jan, Founder, Manag­ing Direc­tor and CEO of Water­field Ad­vi­sors, a lead­ing multi fam­ily of­fice. Srini­vasan adds, that only the top 20 or 30 rich­est busi­ness

fam­i­lies – with wealth of over ` 10, 000 crore – have full blown fam­ily of­fices. It's the wealth man­age­ment of the pro­moter fam­ily that is seen to be their pri­mary re­spon­si­bil­ity in In­dia. Azim Premji, founder of In­dian IT gi­ant Wipro, is be­lieved to have the big­gest fam­ily of­fice in In­dia – PremjiIn­vest – but Busi­ness To­day could not in­de­pen­dently ver­ify this. Of­fi­cials at PremjiIn­vest de­clined to com­ment but con­ver­sa­tions with in­formed sources and me­dia re­ports re­veal that it in­deed is per­haps the largest of its kind, manag­ing around $12 bil­lion, or nearly ` 80,000 crore. It hit the news head­lines fol­low­ing the Wal­mart-Flip­kart deal, where it emerged as a ma­jor ben­e­fi­ciary thanks to its early in­vest­ments in Myn­tra, which later got ac­quired by Flip­kart.

Sim­i­larly, a ma­jor chunk of Su­nil Kant Mun­jal and Anand Bur­man’s in­vest­ments into For­tis Health­care is their fam­ily of­fice money. This is, there­fore, be­ing seen as the com­ing of age of an al­ter­na­tive source of cap­i­tal for new ven­tures. What's more, fam­ily of­fices are pa­tient and will­ing to pro­vide long–term stable re­sources to build busi­nesses. Plus, it comes with strate­gic in­vestors who are will­ing to give com­pa­nies more run­way to per­form well. And the good news: Ex­pect more of this to hap­pen, say fam­ily busi­ness ex­perts. “We see this as a grow­ing trend, where pa­tient fam­ily of­fice cap­i­tal, un­like cap­i­tal from a fund which has a fi­nite in­vest­ment

will come in to sup­port the cre­ation of long term sus­tain­able busi­nesses,” says Soumya Ra­jan. As for the fam­ily of­fice land­scape, she ex­plains, “In terms of true-blue single fam­ily of­fices, there would be about 50 of them and to this if you in­clude those that also have funds, then the num­ber could be around 150 to 200.” Of course, not all in­vest­ment de­ci­sions by fam­ily of­fices pay off. For in­stance, PremjiIn­vest burnt its fin­gers with Sub­hik­sha, the Chen­nai-based re­tail chain, where it in­vested and lost in 2008. But the ex­pe­ri­ence would have greatly helped it to re­fine its pro­cesses and learn what not to do.

Fam­ily of­fices ex­ist broadly in two for­mats. 'Single fam­ily of­fices' that cater to the wealth of a single fam­ily. “Single fam­ily of­fice makes sense when the wealth is siz­able, of­ten in ex­cess of $150 mil­lion. Oth­er­wise the costs of main­tain­ing the of­fice might be more than the ben­e­fits that it pro­vides,” says Nupur Pa­van Bang, As­so­ciate Direc­tor, Thomas Sch­mid­heiny Cen­tre of Fam­ily En­ter­prise at the In­dian School of Busi­ness and some­one who has spent years in try­ing to un­der­stand this space. The other for­mat is the 'multi-fam­ily of­fice'. These, she says, “cater to the needs of many fam­i­lies. They tend to be more cost ef­fec­tive as the costs are shared among many fam­i­lies.”

Not much is known about the pot of money that each UHNWI has and where his or her fam­ily of­fice is park­ing it. Most fam­ily of­fices tend to be lim­ited li­a­bil­ity part­ner­ships and fam­i­lies avoid dis­cussing their per­sonal wealth in the open or how they are putting their money to work and manag­ing in­ter­nal af­fairs. How­ever, some broad trends in terms of in­vest­ment op­tions and the scale of wealth are ap­par­ent. T. V. Mo­han­das Pai, co-founder of Aarin Cap­i­tal, and one who also played a key role in the growth of In­fosys into an In­dian IT bell­wether, es­ti­mates that ` 10 lakh crore is the in­vestable funds with UHNWIs. It seems in line with var­i­ous other es­ti­mates. Con­sid­er­ing that some stud­ies put the num­ber of UHNWIs in In­dia at over 2,000, which even at a con­ser­va­tive level of $50 mil­lion (about ` 300 crore) each, would trans­late to around ` 7 lakh crore. Draw­ing an anal­ogy from the trends in the US, he says: “In the US, peo­ple founded com­pa­nies, put their cap­i­tal, raised in­vest­ment, be­came founder man­agers then got pro­fes­sion­als and be­came board mem­bers and then started di­vest­ing and recy- cling cap­i­tal. We are see­ing a sim­i­lar trend in In­dia, started by the IT in­dus­try where founders have built com­pa­nies, then stepped down, sold part of their stake and set up fam­ily of­fices with large cap­i­tal.”

Cap­i­tal al­lo­ca­tion holds the key

Pai, who along with doc­tor turned en­tre­pre­neur Dr Ran­jan Pai has a fam­ily of­fice in Aarin Cap­i­tal, says a fam­ily of­fice must be about cap­i­tal al­lo­ca­tion depend­ing on the fam­ily’s risk ap­petite and not about in­vest­ment. In­vest­ments are best done by those who have the ex­per­tise to do it, he points out. “My son Pranav Pai told me we have in­vested in 31 funds. We in­vest in funds man­aged by oth­ers be­cause man­age­ment of in­vest­ments is a ma­jor task that re­quires high en­ergy, fo­cus and is a spe­cialised ac­tiv­ity. I see cap­i­tal al­lo­ca­tion as the prime job of a fam­ily of­fice.” Pai adds that "start ups are one of the in­vest­ment op­tions that fam­ily of­fices look at and this is be­cause they can give a good re­turn and are dis­rup­tive. It is an as­set al­lo­ca­tion is­sue." But then, it's one of the op­tions and, ac­cord­ing to Pai, last year, “start-ups raised $13 bil­lion glob­ally but not more than 10 per cent of funds or about a bil­lion dol­lars is from In­dia and com­ing from in­di­vid­u­als, In­dian funds, an­gels or fam­ily of­fices”

Ra­jan's Water­field Ad­vi­sors to­day deals with 40 fam­i­lies out of 7 lo­ca­tions through of­fices in Delhi, Mum­bai, Chen­nai and Ben­galuru, with 38 em­ploy­ees manag­ing as­sets worth $2.5 bil­lion. She sees fam­ily of­fices “as a safe har­bour where fam­i­lies can dis­cuss sen­si­tive is­sues which then helps to pre­serve the fam­pe­riod,

CATAMARAN VEN­TURES Fam­ily of­fice of NR Narayana Murthy

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