Family offices in India are evolving into business catalysers

Family offices in India have become a critical component in the investment landscape with many sector-specific funds, and companies including start-ups relying on them to raise debt or equity. Set up as wealth management vehicles for families of large industrial houses, they have now evolved into holistic service providers and are catalysing job creation, entrepreneurship and fostering self-reliance in the economy, according to a report by PwC.

The number of family offices in India has risen to over 300 now from 45 in 2018 and set to rise more as promoters are spreading their businesses to tier 2 and 3 cities.

• Also read: Mumbai, Bengaluru drive office leasing in H1; Chennai, Pune, Delhi see dips

They have evolved beyond wealth management to one-stop-shop services providers ranging from professional guidance on compliance, legal issues, taxation, investment strategies, and strategic decision making.

Family offices are increasingly investing in startups to diversify their portfolios and increase returns. Premji Invest, Catamaran, Patni Financial Advisors, Unilazer Ventures, Aarin Capital are some of the top family offices that are regulars in the startup circuit.

Among Indian family offices, FinTech is a key attraction that raised a total funding of $853.6 million in 2023, the report said. Indian family offices are also setting up offices abroad to tap global investment opportunities. They are transitioning from being passive investors to being mentors for new entrepreneurs.

“Indian family offices are keenly looking at diversifying their investments across asset classes including real estate, debt, public equity, startups and other alternative investment products,” said Bhavin Shah, Private Equity and Deals Leader. “They are also looking at investing in other geographies to gain exposure to various currencies, thereby mitigating currency risk.”

The PwC report mentioned a family office that had gone global by expanding its investment horizons across various industries.

However there are challenges too in the evolving landscape. Complex family dynamics in corporate houses often leads to trust issues. “…..as the involvement of a family office introduces professionalism, this also tends to create a perceived power imbalance, further complicating trust-building efforts.”

• Also read: IRDAI asks insurers to open more bricks-and-mortar branches

Family offices in India have organic, homegrown roots and lack professional management, succession planning and governance norms. While business owners are aware that they have the task of growing the business and passing it on to the next generation leadership transitions are not clearly defined. Most corporate families in India have been witness to bitter succession battles with protracted legal wrangling over the assets.

The report pointed out that there was a need to establish key performance indicators for family offices so that they can align their priorities with that of the business. “Financial activity, liquidity, and non-financial indicators such as family engagement and cohesion, reputation and brand perception, and managing safety and privacy risks could also be used to assess performance.”