When I started my wealth management career two decades ago, the concept of a Family Office was relatively unknown in India. Even today, it’s a term that resonates primarily within select circles of wealth creators.
Throughout my journey hosting the Create Wealth podcast, I’ve had the privilege of interviewing 24 wealth creators, 5 of whom have established their own Family Offices. As I prepare for my upcoming interview – the 6th in this exclusive category – I’m struck by the exponential growth in popularity of these structures in the past decade.
Once predominantly associated with European and American ultra-high-net-worth individuals, Family Offices are now gaining traction among India’s financial elite.
Picture this: a dedicated team of 10-20 professionals working around the clock with a singular focus—to manage, grow, and protect the wealth of India’s most affluent families.
These specialised units often operate from within the family’s primary business headquarters, wielding expertise to trade, invest, govern, and optimise portfolios worth hundreds of crores for a single family or an individual.
In this edition of the Create Wealth blog, I aim to demystify the concept of Family Offices and inspire you, our valued reader, to envision the possibility of establishing one for yourself. In this issue, we’ll cover:
- The rich history of Family Offices, tracing their origins back nearly six centuries
- An overview of the various types of Family Offices and their distinct characteristics
- Profiles of prominent Family Offices in India, including the influential families behind them
- A deep dive into the multifaceted functions these offices perform
- A realistic assessment of the costs associated with setting up and maintaining a Family Office
- Key indicators to help you determine if you’re ready to establish your own Family Office
- An analysis of emerging trends shaping the future of Family Offices in India and globally
Hopefully, by the end of this blog, you’ll have understood its complexities and the immense value it can bring to wealthy families.
So, let’s dive in!
The evolution of Family Offices – a 600+ year odyssey
The painting “Lorenzo de’ Medici with Artists” was created by Giorgio Vasari in the 16th century, specifically around 1556. Vasari painted this fresco as part of the decoration for the Palazzo Vecchio in Florence, Italy. It is meant to celebrate the Medici family’s legacy and their role in fostering the Renaissance.
The concept of the Family Office traces its origins back to the 15th century with the House of Medici in Florence, Italy. Established in 1397, the Medici family managed their vast wealth through a sophisticated banking operation that became one of Europe’s most powerful financial institutions. Beyond banking, the Medicis diversified into real estate, trade, and art patronage, laying the foundation for modern Family Office practices that balance financial growth with cultural and philanthropic influence. Their innovative approach set the stage for what we now recognise as the Family Office model, focusing on governance, investment, and legacy planning.
The Medici family invested in passion projects that transformed the world, much like modern Family Offices do with startups. They supported Galileo, whose telescope advancements revolutionised astronomy. They funded Leonardo da Vinci, allowing him to innovate across art, engineering, and science, leaving a lasting legacy. Their backing of Bartolomeo Cristofori led to the invention of the piano, reshaping music forever.
Fast-forward to the 19th century, and we see J.P. Morgan & Co. setting the stage for modern Family Offices. They went beyond managing money – they were advisors, stabilisers of financial markets, and pioneers in philanthropy. In many ways, they wrote the playbook we’re still following today.
So, what exactly does a Family Office do today?
What is a Family Office?
A Family Office is essentially a dedicated team of professionals on the payroll of an ultra-wealthy family tasked with managing and growing their wealth. Skilled in investment management, this team ensures that the family’s portfolio aligns with its long-term goals and values. While it may collaborate with other wealth managers, its primary focus is on day-to-day investing along with succession planning, trust structuring, and philanthropy.
But why is such a unique offering or entity needed?
Family Offices are needed because ultra-wealthy families have substantial assets that require a hands-on approach. As families grow, privacy becomes crucial, and a dedicated team ensures confidentiality. Family Offices focus on long-term investment horizons, planning not just for years but for generations. They address complex needs like creating a family constitution, setting up an investment committee, and making decisions with long-term impact. With many stakeholders involved, they cater to the diverse needs and risk profiles of each family member, ensuring all interests are managed effectively.
These specialised entities offer a level of customisation and attention that traditional wealth management services often can’t match.
Demographic changes have also played a key role in reshaping Family Offices. As wealth transitions from one generation to the next, we’re witnessing an evolution in the preferences and priorities of affluent families. Younger generations often have different priorities, such as sustainable investing, embracing new technologies, and spreading investments globally.
According to a report by PwC, as of June 2024, there are approximately 300 formal Family Offices in India, with many more in various stages of formation in tier 2 and 3 cities.
Types of Family Offices
Generally, there are two types of Family Offices:
Single-Family Office – A dedicated office serving one ultra-wealthy family.
Multi-Family Office – A shared office serving multiple ultra-wealthy families.
Here’s a simple illustration of how these two types differ –
Some prominent Single Family Offices and the families that own them:
Functions of a Family Office
Understanding the costs of running a Family Office
Now, let’s talk numbers. Setting up a Family Office is not a straightforward decision, so it’s essential to understand the costs involved.
According to the 2023 UBS Global Family Office Report, the average annual operating cost for a Family Office is approximately 0.4% of assets under management (AUM). For a Family Office managing USD 100 million, this translates to around USD 400,000 each year.
However, as AUM increases, cost efficiencies often emerge. For instance, while the average cost remains at 0.4% for AUM in the USD 100 million–250 million range, it decreases to 0.35% for those managing over USD 1 billion.
Looking into 2024, the largest projected expense for Family Offices will continue to be their operational costs, including personnel, infrastructure, and IT, which are expected to account for 57% of total costs. Asset management will be the next largest expense, representing 24% of projected costs.
Staff costs take the lion’s share of the overall cost of running a Family Office. Over 65% of Family Offices employ only up to 10 staff. Although this might seem surprisingly insufficient to execute the full gamut of services offered by a Family Office, this is very common.
It’s also important to note that while costs may not appear significant for some families, securing top investment talent and accessing a broad network to source the best investment opportunities can be challenging. Highly skilled professionals are often in high demand, making them difficult to recruit and retain. Additionally, finding a wide range of lucrative investment opportunities requires extensive connections and market knowledge. Without the right talent and network, families may struggle to maximise their wealth and achieve long-term financial goals.
When is it time to set up a Family Office?
In my experience, one common question is, “How much wealth is needed to justify setting up a Family Office?” While there’s no definitive answer, a Deloitte report recommends starting with USD 100 million or INR 800 crore in investable assets. However, there are exceptions; some families or individuals establish a Family Office with as little as INR 100 crore. In these cases, they often operate without full-service capabilities and rely on external partners for administrative and non-investment needs.
However, the amount of wealth, while important, isn’t the only factor to consider. Remember, it’s not just about having the means to set up a Family Office – it’s about whether it truly aligns with your family’s needs, goals, and long-term vision. As more of these factors come into play, the stronger the case becomes for establishing a Family Office.
That’s why I always recommend a thorough due diligence process. It’s an essential step in assessing whether and when to set up a Family Office. Working with trusted advisors, this process provides a framework for weighing these critical factors, helping families decide whether a Family Office is the right move for them.
Events that can lead to the formation of a Family Office
Scenario 1: Separation
As a family business expands, managing diverse assets can become overwhelming. A Family Office helps separate business operations from family affairs, ensuring focused oversight and reducing conflicts of interest.
Scenario 2: Liquidity event
When a family business is sold or recapitalised, the resulting wealth often prompts the creation of a Family Office. This provides a structured approach to wealth management and governance.
Scenario 3: Fund redemption
If a hedge fund or private equity manager redeems third-party investors, they may shift to a Family Office model, focusing exclusively on managing the family’s assets in line with their goals and values.
Key observable trends
Let me share some key trends in the Family Office space:
- Family Offices as comprehensive service providers – Family Offices are evolving into all-in-one solutions, offering a broad spectrum of services beyond wealth management. They provide expert guidance on compliance, legal matters, taxation, investment strategies, and strategic decision-making, helping families streamline operations and achieve long-term goals.
- Focus on startups – Family Offices are increasingly investing in startups to diversify their portfolios and seek higher returns. This shift from traditional investments includes exploring opportunities in emerging markets, with FinTech being a key focus area for Indian Family Offices, which raised USD 853.6 million in CY23.
- Embracing new technologies – Indian Family Offices are gradually adopting emerging technologies like artificial intelligence (AI), machine learning, and data analytics to optimise investments and enhance operational efficiency. The next generation of leaders is spearheading this trend, focusing on digitising operations with advanced wealth management software that offers real-time data and business intelligence dashboards. While some Family Offices are faster in adopting technology, others are leveraging algorithms and predictive models to analyse market trends and manage risks effectively.
- Going global – Wealthy families are broadening their investment horizons beyond domestic markets, embracing a global citizenship mindset. This trend showcases the adaptability of wealth management strategies in response to changing economic landscapes. An Indian Family Office has successfully expanded its investments across various sectors, including automotive, steel, telecommunications, and hospitality, diversifying its portfolio and seizing global opportunities.
- Responsible investing – Family Offices are increasingly aligning their investments with environmental, social, and governance (ESG) criteria, focusing on impact investments that yield both financial returns and positive social outcomes.
In summary –
Family Offices are gaining significant popularity in India. However, it’s important to note that Family Offices are not yet recognised as a distinct entity by SEBI, RBI, or the Government of India, with the closest regulated equivalent being a Trust.
As more Family Offices emerge and actively participate in public and private markets, we might eventually see them becoming a regulated entity.
Establishing a Family Office is not a necessity, and many wealthy families choose not to have one due to the high costs, time and complexity involved. Ultimately, it’s a personal decision that should be made with careful consideration.
Despite this, I truly believe that Family Offices are probably the most pure custodians of a family’s legacy. Just as the Medici family sparked a Renaissance, investing in the artists and thinkers who reshaped the world, today’s Family Offices hold the power to become the patrons of tomorrow’s breakthroughs.
Disclaimer: The above content is for informational and educational purposes only.