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Family Offices In India To Boom: UBS and Campden

The number of family offices in India is set to experience a boom, due to the dramatic growth in wealth and upcoming intergenerational transition of assets and despite a “national obsession” with the privacy of family wealth, leading to a mistrust of external professionals.

In 2011, according to FoUbeV, India was home to 55 billionaires, the third highest number in the world, after the US (422) and China (146). Yet because much of its wealth was accumulated in the last 60 years, the country’s use of the family office model has remained limited.

However, due to the surge of very wealthy individuals and the upcoming intergenerational transition of assets and control in the region, the number of family offices in the country is set to soar says a report a new study by UBS and Campden, a family office research specialist. It argues that the entire Asia-Pacific region is preparing for a boom in family offices.

“While family offices are well established in financial centres such as Hong Kong and Singapore, we see a growing interest in family office setups from entrepreneurial families in India, China and Taiwan, as well as in South East Asia,” said Kathryn Shih, CEO of UBS wealth management Asia Pacific in the report.

In these countries, increasing numbers of wealthy families have been looking adopt on their own versions of the western family office concept, adapting it to fit their cultural frameworks. “The new wealth being created in India… is new to the family office concept and as such is developing models, but also ones that are particular to their state of wealth creation and cultural differences” reads the report.

The report found that in India in particular, there is a strong cultural desire for confidentiality, though this is reflected throughout the Asia-Pacific region. The family offices who took part in the UBS survey were asked to rank a list of their objectives. The most important, by a considerable margin, is “confidentiality.”

This stems from the increasing disparity between rich and poor in many Asia-Pacific countries, and the fear amongst their wealthy of kidnappings or attacks. “In countries like India…privacy of family wealth is a national obsession,” a Singapore-based global custody specialist told the study. “In time, they may decide to consolidate their arrangements, particularly if one of their banks or brokers collapse, but for the moment the privacy barrier can be hard to break.”

While UBS predicts the family office model is likely to gain popularity in India, because of the need for secrecy it is likely to be an amended version, favouring the single family office model over multi family offices. The report quotes an interview with two Indian family office participants, one member of a family, the other a family office professional.

“Very wealthy Indians think they are incredibly shrewd, and quite frankly in nine out of 10 situations they are” said the family member. “They don’t use external professionals and external managers as much as you might think. They tend to avoid allowing any single external firm to understand all their financial affairs. They don’t like paying unnecessary taxes…They prefer to re-invest their money in their own businesses or other businesses directly, before thinking about investing indirectly in stocks or bonds.”

The family office professional agrees. Wealthy Indian families like to stay in control of their own finances.

“One or two members of the family may drive all the decisions, or the family might use other firms to do most of the detailed work” he said. The model varies hugely from family to family, but “they definitely don’t like to pay too many fees.”

As it stands, the majority of family offices in India were set up by first-generation entrepreneurs, and the boundaries between family businesses and family offices are frequently indistinct. Typically this kind of office offers few services and its primary focus is re-investment of wealth back into the family business, or pursuing other business opportunities. Characteristically, staff in this type of office are friends and family of the entrepreneur, and the number of people involved in decision making is very small.

However, the report shows that “family offices in the region are keen to professionalise their offices over the next few years”. As an Indian family office principal said: “We do lack sophistication in some areas. Managing relationships with banks is one area. Our immediate objectives are to work on professionalising the office.”

Family offices cite various measures they need to take in order to achieve this, including the employment of investment and financial analysts; trust expects; philanthropy specialists and other “capable people prepared to cope with overly controlling, demanding family owners.”

Despite the obstacles outlined above, the conclusions of the report are unequivocal.

“We will definitely see greater interest and growth of the family office structure in the next three years.” Once the proper trust experts available and confidentiality measures are in place, family offices in the region look set to boom.