How are family offices revolutionizing wealth management for India’s ultra-rich?

India’s 0.1% have a new concierge service for wealth management. Family offices (FOs) are now a must-have for ultra-HNIs worth their smarts, stocks, stablecoins, sea-facing villas and Souza paintings. Their personas differ. But mostly these in-house investment teams – financial butlers – have evolved far more swiftly than managers of fusty private banks. In the last year, they have become bigger, bolder and more bountiful, foraging the market for savviest opportunities.Being more of an investor than an asset class, these new deal magnets are eating into the lunch of early-stage VCs and PE funds. Bigger FOs, like Azim Premji’s Premji Invest, have the flexibility to own stocks, incubate ideas, own businesses, invest in VCs or AIFs, or even buy into companies. If the growing disenchantment with third-party money managers persists, they may soon scupper their supper, too.

Home to the third-largest count of billionaires, India is playing catch-up to a global trend that started off as a personal investment arm of JPMorgan, but today is among the fastest generators of wealth worldwide. Over 8,000 FOs manage $4-11 tn in assets – more than hedge funds. In India, too, says Sundaram Alternates’ August 2024 ‘Family Office Report: From Legacy to Leadership’, more than 300 such offices are managing $30 bn of assets – 6x jump in as many years that’s expected to grow 1.5x in the next three years.

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What is starker is the degree of reliance on these brain trusts by business families to preserve wealth, administer assets and solve sensitive succession issues. Creating offshore structures to globalise investment portfolios is common, especially when Next Gen is often keen to diversify beyond core businesses.

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From portfolio derisking to prioritising, preserving and growing wealth, for baby- faced tech trailblazers, film and sports stars, or freshly minted IPO billionaires – Junejas of Mankind Pharma, Ola Electric’s Bhavish Aggarwal, to Zomato’s Deepinder Goyal – these ‘super helps for the super-rich’, to quote cultural critic Peter York, are omnipresent.

What is the secret sauce FOs have that VCs or growth equity funds lack? Xperience factor: FOs are headed by professionals with deep relationships with the promoter family. Their transition from managing to creating wealth becomes that much more organic. They can, if need be, even fix the plumbing of their portfolio companies.

Name tapping: Over time, FOs are also getting sensitised to doing a smaller number of bigger-ticket transactions for a better bang for the buck. Getting ‘wet and sweat’, much like a turnaround PE shop, is far more productive than the VC model of spray and pray for the best outcome.

A polarising geopolitical environment has also led hardwired MNCs like Coca-Cola, Haier and Amazon to seek out seasoned partners like the Bhartias of Jubilant, N R Narayana Murthy, possibly even a Sunil Mittal or Puneet Dalmia, to provide regulatory and political cover. For them, patient, multi-gen capital that comes unencumbered and with no finite timelines is far more valuable than a fund manager with the fattest cheque book and limited business knowledge.

The perpetual pool of capital of FOs is more attractive to fund life structures, even for late-stage companies primed for listings. Name-lending by blue-blooded businesses props up their credentials, or acts as an endorsement of governance.

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Closing the loop: When Binny and Sachin Bansal reinvest their money, they are seeding back into the same ecosystem that nurtured them. Entrepreneurs beget entrepreneurs. Their mental makeup is similar, and their syntax is the same. Newer cohorts find it easier to deal with them than straitjacketed funds or external wealth managers, especially in the build-out stage to scale up fast.

They get operational freedom, and also learn to navigate business cycles and business pivots from seasoned campaigners like Snapdeal’s Kunal Bahl. Often a white knight, Manipal’s Ranjan Pai is planning to help Akasa soar to new heights, while Zepto tapped FOs for their latest round of fundraising.

Ultimately, an FO is an acknowledgement by the rich of the role played by luck in their lives. Either they came up with a great business idea at the right time and devoted energies to making it a success. Or, they were lucky enough to be born to such people.

The smart thing to do when you have been lucky once is not to devote your capital or time to any one thing, but spread it around by betting on other people and projects that you think could get lucky. Staying liquid is always lucrative.