Ever wondered how the ultra rich, high-net worth folks manage their money? They usually set up a ‘Family Office’ that takes care of important matters like successusion, tax and managing the estate. In other words they outsource certain responsibilities pertaining to their finance and investments to a group of trusted individuals.
There are two types of family offices – single and multiple Family Offices. Single family offices deal with financial matters of only one HNI and will not take up managing assets of any other HNI. On the other hand, multiple Family Offices refers to an establishment that takes on the task of managing assets for several wealthy families.
And this concept is older than you think. There were princely families setting up Family Offices way back in the 6th century. However the concept of a modern Family Office was conceived in 1838 by John Pierpont Morgan, an art collector who came from a family of financiers. He established the House of Morgan to manage the family assets. Over the years the institution saw several mergers and acquisitions to become what we know today as – JP Morgan & Chase – the largest bank in the United States and the sixest largest in the world.
According to a report by Edelweiss Financial Services and Campden Family Connect that surveyed 78 wealthy families, about half of them relied on Family Offices. One of the key reasons for the rise of Family Offices is the growing global trend to professionalise the way family-run businesses operate. That’s why wealthy families are turning to Family Offices to diversify their wealth holdings across asset classes like private equity, real estate, hedge funds, equity, etc. This increase in demand for Family Offices could also be because India was home to 2% of the world’s millionaires in 2019 whose wealth in the country grew by 4x between 2000 and 2019. By 2024 we could be looking at $16 trillion!
Some prominent Family Offices include Narayan Murthy’s Catamaran Ventures, Ratan Tata’s RNT Associates, PremjiInvest, Damani Group’s Artha India Ventures, and Ronnie Screwvala’s Unilazer ventures. Family Offices like these have a huge role to play in the private equity ecosystem and venture capital space. This is largely because they have a reputation of fund stability given their long-term investment horizons and portfolios. They’ve become a go-to source of capital for liquidity events within private equity ecosystems, and hedge funds & investment banks. In fact, investment vehicles run by ultra HNIs are expected to be the source of 30% of the $100 billion raised by Indian startups by 2025.
The future for Family Offices is an evergreen one. According to the Wealth report 2021 by Knight Frank India, the number of ultra-high net worth individuals with wealth of $30 million or more in India is expected to see a sharp rise of 63% over the next 5 years pushing the total number to 11,198. And this would be the second fastest growth rate in the world, with a steep rise from the current 6,884 HNIs in India. On the other hand, the billionaires club in India is poised to grow by 43% by 2025. This is bound to have a knock out effect on the wealth pool of various asset classes, especially the private equity space – creating more robust Family Office systems.
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