India’s ultra-rich hire pros to manage personal wealth
Imagine that you are a highly successful businessman. Your company’s turnover runs into crores of rupees every month. And crores of rupees devolve upon you and your family members.business Updated: Mar 31, 2014 08:11 IST
Imagine that you are a highly successful businessman. Your company’s turnover runs into crores of rupees every month. And crores of rupees devolve upon you and your family members.
How would you find time to manage all that money, in addition to running your business? How will you ensure that your wife and children get enough money to meet their needs, yet don’t blow up the family wealth?
Enter, the concept of a family office. More and more business houses in India are opening family offices — 200, at the last count, and ticking towards 500 in the next five years — and hiring professionals to take care of their investments, expenditure and tax issues.
As new millionaires emerge every year, a family office is becoming the norm rather than the exception, according to wealth management experts.
“One has become individually wealthy where you got your own cash and you can’t invest it back into the company because the company may not need it any longer,” said Vikram Thapar, CMD of Karam Chand Thapar & Bros Ltd. “In old days, you ploughed the money back into the company. Today that is not the case so that is where the family office comes in.”
The Thapar family has had a family office for about four years. “As long as your capital grows despite tax and inflation you can’t complain,” he said.
Traditional business families such as the Tatas have had family offices for decades. However, it emerged as a trend only in the 90s, in parallel with the economic liberalissation. “The trend began about 20 years ago with liberalisation, but blossoming happened in the last 10 years with equity evolution,” said Shailesh Haribhakti, managing partner of chartered accountant firm Haribhakti & Co, who sits on the board of many companies.
Indian business families have seen their wealth grow manifold in the last two decades, thanks to exponential rise in market capitalisation of their companies, propelled by massive consumption.
For instance, from Rs 2,300 crore in 2004 Ayurvedic product maker Dabur’s market cap has risen to Rs 30,926 crore last week. In the meantime, the value of the equity held by the promoter group Burman family leapt from Rs 1,794 crore to Rs 21,030 crore. Similarly, Munjal’s 26% stake in Hero Honda was worth Rs 2,547 crore in 2004. Ten years down the line, the promoter family’s 40% stake in Hero MotoCorp is worth Rs 17,386 crore.
The emergence of IT billionaires such as Azim Premji, Shiv Nadar and Nandan Nilekani added to the rise of ultra-high networth individuals. According to the latest World Ultra Wealth report by Wealth-X, India is home to 7,850 high networth individuals, who have more than $ 30 million investible income each and a combined wealth of $935 billion.
“The overall growth in wealth has created a need for wealth management companies, professional trust companies, chartered accountants and lawyers specialising in estate and succession planning, family constitution, family council etc. This has led to the need for family offices,” said Rajesh Narain Gupta, managing partner of SNG & Partners, a law firm associated with many family offices.
Family offices also help handle tensions among family members. “This is the trickiest part of my job,” said a person who runs a family office for a big business family. “Since I take orders from the family head I stick to his line, which sometimes is in favour of one side of the family and disliked by the other side.” Obviously, he refused to be identified for this report.
“Another challenge is to present certain hard facts about loss-making businesses, tax issues etc before the family members — which they do not like. Even when I know certain things are not right, I do not take them up with the family unless I have solid proof to substantiate what I say,” he said.
With the family office trend evolving, independently run multi-family offices too are gaining ground in India. This is aprt from the in-house family offices of wealthy groups that typically work from the corporate office of their flagship companies.
“We offer our services to families with an investible income of more than Rs 100 crore,” said former managing director of Standard Chartered India, Soumya Rajan, who founded Waterfield Advisors, which has about 30 wealthy families as clients.