Family Offices: Gennext in family offices is not afraid of riskier assets

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Investment products, from vanilla common stock PMS funds to complicated alternative investment products, long-term debt funds, private equity, venture capital and even peer-to-peer lending are now structured in the context of the “investment commitments” received from the bulging family in parentheses pools of offices.

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 are looking for asymmetric returns and the only way to achieve this is to invest in all asset classes. In our family office, we invest across all asset classes and across all time horizons,” said Gaurav Burman, director of Dabur International and head of the family’s fifth generation investment program.

A leading sustainable consumer company has decided to co-invest in startups, private companies and venture capital funds. “As you go beyond a certain size, it makes sense to acquire smaller businesses that can be expanded, and the larger parent company’s distribution network can expand that,” said Ashish Gumastha, CEO of Julius Baer.

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,” Julius Baer’s Gumastha said.

Traditionally, decision making in business families belonged to the family patriarch or “elders”.

“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 some changes going on 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 asset 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 not as exciting as they used to be. It 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 drive family office investments, particularly in the new-age digital and technology solutions space. With many next-generation members reluctant to join legacy businesses and their natural inclination, their interests and exposure to all things digital can be tapped,” said Nupur Pavan Bang, Associate Director, Thomas Schmidheiny Center for Family Enterprise , Indian School of Business.

“There is a lot more liquidity and traditional Indian companies are looking to add value to their current portfolio,” said Rohan Paranjpe, ED, Alternative Investments, Waterfield Advisors.

Julius Baer’s Gumastha added that while markets are currently correcting, the past two years have seen unprecedented global liquidity flow into India.

New IPOs for traditional companies (Ruchi Soya) and technology (Nykaa, PolicyBazaar) have led to a healthy cycle of new wealth creation. According to experts, many families were the early backers of some of the newly listed tech companies and they are enjoying healthy liquidity through their investments as well as their core businesses. The NIFTY 50 index is nearly 25% above its pre-pandemic highs through May 5, despite recent market turbulence.

Family capital should be treated as long-term, multi-generational capital, but many new family offices often tend to have a strong commercial mentality. “We believe that investments, where the sponsor has their own capital at work in their own investments, tend to outperform. In the DSP family, most of their public market investments are in DSP mutual funds,” said Aditi Kothari Desai, Vice President, DSP Investment Managers.

Private investments such as venture capital funds and direct deals continue to attract a lot of interest from family offices that have long-term investment horizons, Kothari said.

“Family offices are pools of patient capital…they have longer investment horizons – and there’s no pressure from forced exits. Product manufacturers are reassured to know that we are investors at term by origin,” says Benaifer Malandkar, CIO, RAAY Investments, the family office of the Amit Patni Group.

“POs receive requests for participation from all types of product manufacturers. Even private equity funds would like us to be their limited partners – because we are generally considered to be conservative capital. In addition, many new single-family offices have sprung up in recent years; it’s because many young entrepreneurs have liquidated their business profitably and are sitting on cash,” she adds.

“At Burman Family Holdings, we reinvest the dividend income the Burman family receives from

India. Dabur’s dividend is about 50% of his net income, or about Rs 900 crore per year, and the Burman family owns about 70% of Dabur. Therefore, we have a constant flow of capital to find investment opportunities. We have an investment portfolio of over Rs 10,000 crore and consistent liquidity,” Burman said.

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