The vast majority of Indian businesses are run and owned by families, and as inter-generational transfer and transition issues arise, so does the need to consider family offices as part of the jigsaw. We talk to a man behind a new multi-family office in the country.
India’s business sector is ripe for growth in family offices (single and multi) because so many firms are in private hands as UHNW individuals shed more transactional services, a practitioner in the industry says.
Some 91 per cent of listed firms in India are family owned (source, Family Business United, 22 June 2020). India ranks third globally in terms of the number of family-owned businesses with 111 companies of $839 billion total market value; China has 159 firms and the US has 121 such firms (source: Credit Suisse Research Institute, 2018).
Indian clients realise that it is no longer just about having a smart wealth management brand; they are starting to value independence and alignment of interests more. For some time, people in India haven’t been used to the family office model, but that is starting to change, Munish Randev, founder and CEO at India-based Cervin Family Office & Advisors, said. Cervin is a multi-family office.
The country isn’t home to many big-hitters in the single and multi-family office space - on a par with the US and Europe - but that is starting to change, and already several high-profile business tycoons have adopted these structures. One SFO is Mahindra Partners, the family investment company of Anand Gopal Mahindra, billionaire chairman of the Mahindra Group, a conglomerate based in Mumbai. That office has been a large venture capital investor in India and the US. It has more than $1.0 billion in assets (source: Highworth Research). Another example is Bhagat Family Office, established in 2009 with AuM in the range of $100 million - $500 million (source: Highworth Research). Highworth Research, which tracks SFOs, says there are 32 single family offices in India, and another 28 Indian SFOs are due to be added to its database. To this total of 60 can probably be added another 40 which are not yet known about for confidentiality reasons or they wish to stay below the radar. (It is unclear how many multi-family offices there are in the country at present.)
As younger family members get educated overseas, taking post-graduate and MBA courses in the US or Europe for example, they are more likely to hear about new ways of managing wealth. That’s gaining traction, Randev said. “Next-gen family members who have been educated in Europe and North America are more aware of structures such as family offices and different ways of operating, and this is driving some of the change,” he said.
Regulatory change also helps to fuel demand for fee-based advice, greater independence and alignment of interests – all good news for family offices and similar entities, he said.
The Securities and Exchange Board of India, the regulator, now forces registered investment advisors to only take fees from clients they serve and not have any distribution relationship. What this means is that for financial services groups as a whole, a client can either be an advisory client (taking fees and no commissions from product sales) or a distribution client (no fee, only commissions from product sales and no advisory). Clients looking for unconflicted advice will have to go to an advisor.
“The erstwhile model wherein UHNW families would deal with multiple wealth managers (distributors) and also seek advice from them has been almost demolished,” Randev said.
“There are some advisors who still try to earn a side-income by selling start-up equity or venture capital funds to their clients but that is against the essence of the regulations and hopefully SEBI will plug that gap as well,” he said.
Randev, perhaps understandably given changes in his wealth industry experience, is a family offices enthusiast. He founded Cervin, having had more than a quarter of a century of experience in the financial services and family office space. Randev has worked at ABN AMRO, Fidelity International, India-based wealth management house Avendus in 2010, and the advisory firm Waterfield.
Many Waterfield people joined Randev at the Cervin business he has set up, including Rohit Karkera, who heads the investment function at Cervin, Jigar Desai (head, portfolios), and Yatendra Chauhan (head, products and credit strategy), among others.
“We believe that we have the most experienced team in the family office advisory space in India. The team has collectively advised over 75 family offices in India with assets under advisory of approximately $3.5 billion. This is a huge advantage for our clients. You cannot just shift from product or banking sales and suddenly start advising large complex family portfolios. Also, each team member comes with strong credentials in integrity,” he said.
Cervin covers four broad domains: family wealth advice; family governance, estate planning, and philanthropy. At present, all clients come from India.
The firm began to onboard clients in November 2020 after receiving the necessary approval from the regulator. The business will also cater for NRIs living outside India and other offshore institutional investors looking for exposure into the India markets. The launch happened at the end of what has obviously been a tough time globally. The COVID-19 pandemic has hit India, as it has everywhere else. Last November for example, Moody’s, the credit rating agency, forecast that India’s GDP would shrink by 8.9 per cent in the 2020 calendar year, but would rebound with a figure of 8.6 per cent this year.
Cervin’s head office is in Mumbai, India and it will shortly open an office in Bengaluru. The pandemic lockdown delayed the office setups, Randev said. These operations will be followed by those in Delhi and Chennai.
Randev said its revenue model is purely based on fees; the investment advisory mandates earn a basis point fee according to the complexity and size of the portfolio. Services such as setting up a family governance platform, helping with estate planning, support in setting up and managing a philanthropy platform are charged separately.
“Not everything we provide to the family can be charged as a service. From our experience we have seen that the relationship with clients evolves over time as we build trust and we become a sounding board for many of the family’s decisions,” he said.
India’s family office sector has potential, but families need to understand the business economics, he said, making the case for a multi-family office model such as his own.
“While the cost of actually setting up a quality single family office team is high, as quality talent is not so easy to poach, it also demands time from the business family to oversee the management of the internal office. And if the size of the family wealth is not large enough the cost can have substantial impact on the net returns, especially if you take into account the compounding impact.”
“MFOs provide an ideal solution for families to get quality advice and guidance from an experienced team. The concept of shared cost along with access to experts will be an attractive proposition,” he added.
(To find out more about the Highworth Research database referenced above, click here to register.)