Wealth In Asia 2011

India's Rich Manage Wealth With Family Offices

Neerja Pawha Jetley|CNBC Contributor

With its rich harvest of entrepreneurs, an economy growing at 8 percent, and one of the fastest rates in the world for minting millionaires, India is an attractive market for wealth managers. Yet marquee brands of private banks are either treading very softly or negotiating strong headwinds.

Imagesbazaar|the Agency Collection|Getty Images

Economic uncertainty, corruption scandals, and a sliding stock market are souring the appetite of the rich for wealth advisory services. India’s old rich have traditionally been reluctant to take professional help, while the young millionaires are only just warming up to private bankers.

Despite these challenges the Indian market is too attractive to ignore. India’s current 62,000 households with a minimum net worth of $5 million will rise to 219,000 by 2015, according to research by Indian rating agency Crisil and investment bank Kotak Mahindra. As wealth managers look for ways to successfully tap into this lucrative market, one concept beginning to gain currency among the rich is that of family offices.

A luxe advisory service, family offices straddle the space between pure investment advice offered by financial institutions and the personal and family needs of high net worth individuals. Family offices offer advice on estate planning, wealth protection and taxation—with many even scouting for holiday homes, sourcing rare wines and antiques, or dealing with an ‘errant’ grandchild.

Family offices manage upward of $3 trillion worldwide according to Cerulli Associates, a U.S.-based research firm specializing in the financial services industry. Multi-family offices run by international banks and institutions like UBS, Bank of America Merrill Lynch, Morgan Stanley Smith Barney and others have about $350 billion in assets, according to Cerulli.

In India, the market for family offices is nascent yet growing, with 940 such offices expected in the country by 2015, according to a report by Markets and Markets, a Dallas-based research firm.

“With wealth exploding and the economy transiting from scarcity to prosperity, we see a huge demand for estate planning, wealth protection, taxation advisory and more,” says Himanshu Kohli, co-founder of Client Associates, an early entrant into the Indian family office space in 2002. In less than a decade, his firm’s client list has grown from five to 400.

International banks like Credit Suisse, HSBC and Standard Chartered Bank have also set up family office services to cater to the growing Indian market. Morgan Stanley recently opened its fifth office in India at Chennai to cater to the wealth management needs of the ultra rich.

When a traditional CFO has acted as a gate-keeper of family wealth, we do face a challenge of educating the family patriarch but this also translates into an opportunity for family offices.
Co-Founder, Altamount Capital
Richa Karpe

J. P. Morgan is also set to tap the wealth management business in India that will offer specialized advice to the rich. “India’s ultra rich with increased global exposure and dynamic business needs are now demanding specialized advice on business continuity, succession planning and  philanthropy. We see a strong demand for family offices in India,” says Rahul Malhotra, Head of South Asia, J.P. Morgan Private Bank.

India’s wealthy have been traditionally reluctant to share information on family wealth. This is leading many well-known Indian families to open their own family offices rather than going to private banks for wealth management services, say industry observers.

Azim Premji, chairman of Wipro, the third-largest IT company in India, recently set up an in-house family office called PremjiInvest with $1 billion of his personal wealth.

Analjit Singh, the promoter of Max Group, which runs healthcare and insurance businesses in India, has set up a team of close confidants to “preserve and conserve” family wealth. Many other industrialists like India’s richest man Mukesh Ambani of Reliance Industries, whose personal wealth has been estimated at $27 billion by Forbes, have done the same.

India’s rich are hands-on when it comes to managing their wealth and like to have full control over their investment decisions, which is another reason they prefer family offices over private banks, say market observers.

“India’s super rich expect personalized services but prefer to keep stronger control on investment decisions as compared to their Western counterparts,” says J.P. Morgan’s Malhotra.

“When a traditional CFO has acted as a gate-keeper of family wealth and there is a historical aversion to paying for advice, we do face a challenge of educating the family patriarch but this also translates into a promising opportunity for family offices,” says Richa Karpe, Co-Founder of Altamount Capital, a multi-family office business set up in 2008.

The India family office space holds huge potential. Only around 20 percent of the high net worth market has been penetrated, according to Markets and Markets. Further, it estimates that $128 billion of inter-generational wealth transfer will take place in India in the coming decade.

Competition between wealth advisory firms is thus set to increase. “In the longer term international banks will have a bigger share in this market due to their global expertise in the family office space, access to a wider product range and a strong infrastructure support,” says J.P. Morgan’s Malhotra.

However, Karpe says standalone family offices have a distinct advantage over bank-run family offices, as “(they don’t have) conflicting interest to peddle in-house financial products faced by private bank advisors. Clients, therefore, get objective advice customized and tailored to their needs in the boutique firms.” Clearly, the battle lines are drawn.