HOW THE RUPEE IS DIVIDED
Family offices are still investment oriented but there are also those that have been created to deal with larger issues of succession” Soumya Rajan, Founder, MD and CEO, Waterfield Advisors
maran Ventures, family office of NR Narayana Murthy. Ask him about Catamaran’s big achievement and he says: “Our team size has expanded, we have understood more about the companies we invest in, set up Anviti, a new insurance and reinsurance broking company. Then, the partnership with Amazon (to help small and medium businesses get online and tap into online customers) is doing well.” But then, how is the wealth invested by family offices? On what basis are investment decisions made? “We keep it simple. We look at exceptional businesses in the listed and unlisted space that are run by capable and ethical managers, have a long runway ahead and creating tremendous value to the end markets they serve,” he says.
It is apparent that investment needs careful analysis. Typically, as Business Today gathered, investments tend to get segregated into three categories. One is the conservative risk capital, which, Rajan describes as the “family’s go-to money in the event of a major financial collapse or if a black swan event happens. This is the pool of capital that the family can fall back on and could be in the form of a sovereign debt, tax free bonds or fixed deposits or other such investments that are extremely safe.” This would typically make up for about 25 to 30 per cent of total portfolio. About 15 per cent of the total kitty is at the other end of the investment spectrum. That is, if there has to be 10 to 12 per cent post tax return on the overall portfolio then you need to have investments that are giving you 16 to 20 per cent return. This could be in venture capital, private equity, angel and seed investment space. That can give exponential returns over a 7 to 10 year period. It may not be more than 15 per cent of the overall portfolio of a family office. The balance or the remaining funds – about 60 per cent of the total kitty – sits in what is called the market pool. This could be in listed equities, fixed income, all products that are mark-to-market investments. Here, they need to beat luxury inflation for these are people who invest in high end cars, jewellery and lifestyle holidays.
Family offices typically monitor investments and advice families on when to stay put and when to exit. For instance, Soumya Rajan gives the example of the recent Punjab National Bank fraud and says that family offices were also exposed to the fallout because various mutual funds were holding the bank's stock and debt. “At Waterfield we quickly started taking stock of the developments and assessing the risks that our families could face and see how to ringfence their investments from such external risks and shocks,” she says.
So, what is the way ahead? “Our aspiration is to be a pre- eminent, globally respected investment firm that even global investors would reach out to for help to either understand aspects of a sector or specific companies,” says Catamaran’s Lakshminarayanan.
Clearly, family offices would gain heft over the next few years.
Conservative risk capital, go- to funds in case of emergency. 25%