Mint Primer | Family offices total 300 now. What’s driving them?

What’s fuelling the family office boom?

Family offices in India have jumped from 45 in 2018 to 300 in 2024. A Julius Baer study with EY of more than 25 of these offices reveals top drivers: preserving value of assets keeping in mind the scale and complexity of wealth and asset holdings, strengthening governance by separating family and business affairs, and ensuring smooth succession. Beyond managing wealth, family offices also streamline estate planning through trusts for tax-efficient wealth transfer, align philanthropy with family values, and safeguard legacies with encrypted digital vaults, thereby keeping wills and vital records secure and accessible.

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How are investment strategies evolving?

Among family offices, 44% have less than 20% allocated to fixed income, 41% have no allocation to traditional fixed income, and only 15% maintain over 20%. This dramatic shift indicates families are moving away from low-yield traditional investments and towards diversified investments. Moreover, India’s family offices, which previously relied on manual processes and paper trails, are increasingly embracing emerging technologies to stay competitive. With a tech-savvy generation stepping in, tools like Artificial Intelligence, advanced analytics, and secure cloud platforms are enhancing portfolio management, operational efficiency, compliance, and real-time visibility.

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What new assets are they diversifying into?

Family offices are collaborating with foreign counterparts, and also channelling capital into portfolio management schemes and alternative investment funds (AIF). Growth assets now command over half the allocation for many family offices. Startups, AIFs, private credit, and private equity/venture capital provide high returns, diversification, and access to emerging growth sectors. Real estate assets like Reits and InvITs, too, are used for diversification.

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Why kinds of funds do they prefer?

In private equity funds, growth and late-stage funds offered better returns than early-stage funds as on 31 March 2024, the report cites Crisil Intelligence as saying. These funds offer faster liquidity, enabling quicker reinvestment or distribution based on strategy. In addition, backing mature, exit-ready companies enhances outcomes for family offices, boosting multiple on invested capital, which compares the value of an investment at exit with the initial investment, and improving distributed to paid-in capital—the total capital that a PE fund has returned to investors.

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Do regulatory issues pose concerns?

Tax regulation changes top family office concerns at 48%, reflecting complexity of cross-border wealth management and its impact on wealth preservation. Indian family offices must comply with key regulatory requirements: income tax obligations; foreign investment and remittance regulations; and anti-money laundering norms. Cross-border investment structures represent 37% of concerns, due to complex international compliance. Regulatory reporting (7%) and tax compliance complexity (4%) are less pressing but still notable concerns for family offices.

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