But what makes family offices (FOs) the favorites is critical long-term capital with investment horizons of 6-10 years. These large pools of family capital are now managed by young descendants of wealthy business families. They are more adventurous with riskier investments such as seed-stage startups, unlisted companies, early-stage venture capital funds, and greenfield real estate projects.
“Family offices tend to be opportunistic and nimble. They seek asymmetric returns and the only way to achieve that is to invest across asset classes. In our family office, we invest across all asset classes. assets and over all durations,” said Gaurav Burman, Director of Dabur. International and fifth generation manager of the family investment program.
A leading sustainable consumer company has decided to co-invest in startups, private companies and venture capital funds. “It gave us access to those businesses and as we liked the business we took a substantial equity stake from the developers. When you cross a certain size it makes sense to acquire smaller businesses that can be put on the market ‘scale, and the largest distribution network parent company can scale it,’ said the leading third-generation promoter who runs the family office.
In the chemical and pharmaceutical industry, the next generation is working on R&D, smaller molecules and higher margin molecules. These are smaller companies, incubated separately and once they reach size, they are acquired by the company. “So we work with these boutique businesses and once they reach scale, we either integrate them or sell them separately,” the Mumbai-based family office member said.
Traditionally, decision making in business families belonged to the family patriarch or ‘elders’.
Broader asset allocation
“Given limited exposure to new asset classes, they would steer clear of more ‘exotic’ options such as PE/VC – which was totally off limits,” says Rishabh Mariwala, founder and director of Sharrp Ventures, who is part of the Mariwala Family Office.
“However, there are a few changes happening in these businesses… First, there is more liquidity for these business families now. Second, the new generation members of these families are exposed to new classes The founder is then pushed to evaluate opportunities that he might not have considered ten years ago,” he adds.
The emergence of “wealth-tech” allows these traditional business families to self-assess their investment options. This has caused traditional business families to embrace asset allocation on a larger scale.
“Put simply, gold and real estate are no longer as exciting as they used to be. This forces these families to assess where they are investing,” adds Mariwala.
A report by 256 Network and Praxis Global Alliance India revealed that family offices are emerging as an important source of funding for startups in India. They have already invested more than 5 billion dollars and this figure should be multiplied by 5 to reach 30 billion dollars by 2025. There are currently at least 150 single family offices, compared to 40 three years ago.
“Next-generation family members are managing family office investments, especially in the new-age digital and technology solutions space. With many next-generation members reluctant to join legacy businesses and their inclination nature, interests and exposure towards all that digital can be leveraged,” said Nupur Pavan Bang, Associate Director, Thomas Schmidheiny Center for Family Enterprise, Indian School of Business.