Family offices surge to 300 since 2018 on Tier-II,-III push

Thanks to a booming market, India now has more than 300 family offices, up from 45 in 2018, according to a PwC report.

The number is expected to grow rapidly, with promoters establishing more businesses in Tier-II and Tier-III cities.

Family businesses play a crucial role in India’s booming economy, spanning manufacturing, retail, real estate, healthcare, and finance.

These enterprises, which include both large conglomerates and smaller firms, together contribute 60–70 per cent of the country’s gross domestic product (GDP), stated the report.

“Anyone who has created liquid financial wealth over Rs 1,000 crore tends to start their own family office,” said Rajesh Saluja, chief executive officer (CEO) and managing director (MD) of ASK Private Wealth.

He was speaking at the launch of the ASK Private Wealth Hurun India, Future Unicorn Index, 2024.

Many large families are now separating their family wealth from their business wealth, creating investment pools outside their primary business to invest in other ventures.

This trend mirrors global practices observed over the past few decades.

Earlier, families typically invested in real estate, eliminating the need for a family office and often relying on fixed deposits.

Now, there is a shift in investment strategies, with many families exploring equity markets, both domestic and global, along with rental income.

“If you look at venture capital (VC) or private equity, institutional money has slowed down.

"But it has been replaced by lots of family offices and ultra high-net worth individuals (ultra HNIs), who are either participating directly or through various funds,” said Saluja.

“I see that momentum only increasing.”

The trend is not unique to India. According to Tayyab Mohamed and Paul Westall, founders of Agreus, a consultancy that works with family offices around the world, asset allocation strategies of wealthy families tend to be similar globally.

Indian families may have a slight bias towards Indian equities due to local access, but the themes and challenges are universal.

“There’s been increased allocation to private equity and private credit, similar to trends in Europe and the US,” said Mohamed.

“It’s a universal theme; when families reach certain wealth levels, their asset allocation strategies become similar globally.”

The next generation is moving forward by establishing structured family offices with dedicated teams to explore new opportunities.

This contrasts with the more risk-averse avenues explored by their preceding generation, said Anas Rahman Junaid, MD and chief researcher at Hurun India.

Younger generations are more comfortable using technology in managing their investments. This generation is driving the adoption of tech in family offices, aiming for better efficiency and decision making, said Westall.

Family offices are increasingly venturing into startups and venture capital, although they typically prefer to see some traction before investing.

FinTech is a key attraction among Indian family offices, which raised a total funding of $853.6 million in 2023, according to the PwC report.

“The risk appetite has grown, and they are looking at VC, though it’s still a small proportion of their allocation,” said Westall.

He added that the new generation is showing interest in sectors like technology and environmental, social, and governance (ESG) investments.

Indian family offices are also establishing branches abroad to access global investment opportunities.

This geographical diversification is partly motivated by the younger generation's desire to study and settle abroad.

It has prompted families to create a financial reserve for the next generation in other countries, stated Bhavin Shah, partner and private equity and deals leader at PwC India, in the report.

Mohamed pointed out that India currently lacks the robust ecosystem for family offices seen in places like London, New York, and Dubai.

Many Indian families prefer to establish their family offices abroad to leverage better access to international markets and talent.

“India is generally not the first point of call for even Indian families to set up a family office,” said Mohamed.

He added, “They choose locations with a better ecosystem and access to international funds and talent.”

The report also stated that many family offices face challenges with succession planning and establishing governance structures.

Nine out of 10 publicly-traded companies in India are family-owned or controlled.

However, only 63 per cent of Indian family business leaders report having formal governance structures in place, such as shareholder agreements, family constitutions, protocols, and wills.