Family offices in India, who have been traditionally heavily weighted in favour of equities, are investing more in debt instruments, with or without credit rating, and structured debt products where they are getting relatively high, stable returns without any of the volatility of the stock markets.
Debt, which was earlier a small part of their investments, is now increasingly a larger part of their portfolios. Returns average at 10-16 per cent and higher in the case of lower rated or unrated instruments. They are not fixated on the credit rating but prefer to go with the names, the people behind the companies and their businesses. “The main goal of family offices is to preserve cash and grow it over the long term, so in that sense, investing in private credit makes sense,” said Rohit Raghavan, Partner at law firm Saraf & Partners, which advises family offices. He added that they are investing in high-growth companies that would otherwise not get credit from banks or NBFCs and therefore they get better returns compared to traditional fixed income instruments.
A recent issuance by Goswami Infratech to refinance its existing debt saw it raising ₹14,300 crore at 18.75 per cent interest with BBB-rating. The issue attracted many family offices and high net-worth individuals.
Family offices are captive wealth advisory management firms serving industrialists and ultra wealthy individuals. “Family offices and HNIs are always looking to explore alternative investment opportunities as part of their diversification strategies,” said Venkatakrishnan Srinivasan, Founder and Managing Partner of Rockfort Fincap.
Alternative opportunities
He pointed out that following the tax amendments on market-linked debentures and debt mutual funds, family offices were looking for alternative investment opportunities and “are trying to invest directly in lower credit rated bonds and non-convertible debentures to avail long-term tax benefits after one year with higher returns.
The term period is medium-term ranging from three to six years as they do not want to tie themselves in for a longer term.
After the RBI directive increasing risk weightage on personal loans, lower credit rated NBFCs, fintechs and micro-finance institutions have started tapping the bond market very frequently, offering 10-14 per cent all in cost depending upon the credit rating, perceived risk and structure of the debt instruments, said Srinivasan. With stable economic growth in India and improved financial performance, majority of BFSI sector have achieved upgrade in their credit rating too which is furthermore attracting the family offices and HNIs, he added.
The debt capital markets head at a top securities firm said that credit rating was not an overriding factor for investments. “They don’t harp about rating. They like the name, the people behind the organisation, the business is acceptable, then its fine.” The main thing is the business should be growing and generating stable, sustained cashflows.
While average returns can range from 10-14 per cent in many cases, it can go up to as much as 18 per cent or even above, with lower-rated instruments. While debt products provide stability and lower risk in uncertain economic climates, “lower credit rates debt instruments are offering higher returns based on perceived risk to attract these investors,” said Srinivasan.
Structured products offer tailored solutions to meet specific risk-return preferences. “This shift suggests a maturing investment approach among Indian family offices and HNIs, seeking to balance risk and return while optimising their portfolios for long-term growth and stability.”