Non-resident Indian wealthy setting up more family offices

The South Asian high-net-worth diaspora has always represented a substantial pool of capital, with Deutsche Bank Private Wealth Management (PWM) putting the liquid wealth of the group -- excluding ownership of property and businesses -- at $50 billion to $70 billion.

Estimates vary, but the diaspora -- which mostly comprises non-resident Indians (NRIs) -- is credited with as much as $400 billion in output, of which some $50 billion is remitted annually back to South Asia. And it is growing in size faster than ever, with Deutsche forecasting an increase in its South Asia revenues and AUM of 35-40% a year, which it says will more than double by 2012.

The German firm estimates that the number of middle-class high-net-worth South Asian individuals is growing at a rate of 10 times that region's overall population growth. Such rapid expansion is providing huge opportunities in this market, says Salman Mahdi, London-based global head of the global South Asia business at Deutsche Bank PWM.

To take advantage of these opportunities the firm plans to boost its 65-strong global team for this business by 40% by 2012. Indeed, it recently added two to its team.

Michael Strasser has joined as director for global South Asia in Zurich, reporting to Mahdi. He joins from Credit Suisse's private banking head office in Zurich, where he was head of special coverage for ultra-high-net-worth clients. Strasser has also worked at Credit Suisse in Mumbai, and Standard Chartered and insurance group Aviva in Singapore.

In addition, Arthur Da Gama joined as vice-president and relationship manager for the global South Asia team in London. He was previously a relationship manager at Barclays, where he spent four years, before which he was with Citi in London for five years.

In terms of NRIs' investment approach, they tend to have broadly diversified global portfolios, but there is always a strong India element, says Mahdi. "It's difficult to put a number on it, but probably most have at least 25-50% of their wealth exposure to India," he says.

Moreover, there are structural changes taking place in India that will facilitate more investment by both NRIs and other investors looking for Asian exposure, notes Ajay Jaiswal, Asia head for the global South Asia segment in Singapore. He points to a new tax code that is being drafted and moves to change the capital-market rules, in the form of a consultation paper on what market participants want to see done differently.

For example, the Securities and Exchange Board of India has proposed a new rule whereby companies will have to float no less than 25% of their shares. Given that many Indian stocks have less than a 25% float at present, they will have to list additional shares, says Mahdi.

"That will be a massive magnet for capital into the region," he says. "There are so many global investors looking to put money into growth stories in Asia, and they will have a much larger free-float [in India] to invest their money in. That in turn creates a lot more wealth for the country's entrepreneurs, who can then in turn invest more." 

Meanwhile, as South Asian wealth is growing, it's also becoming a lot more organised in how it is managed, says Mahdi. "Previously, entrepreneurs would spend a few hours a week on overseeing their portfolios," he says. "But we are now seeing more and more investors setting up more formal structures like family or investment offices, which have a much more scientific and institutionalised approach to investments."

Other private bankers echo this point. "There's more interest in family offices in Asia now, and how clients go about setting them up," says Nancie Dupier, chief executive at HSBC Private Bank Singapore. The number of such offices is growing due to the rapidly rising wealth in the region, she adds, and family offices worldwide are becoming global in terms of how and where they manage their wealth. HSBC Private Bank provides clients advice in this area through its family wealth advisory unit in Hong Kong.

And other private bankers have noted that the family office segment has a long way to go and significant challenges to tackle before it will achieve the level of acceptance and size seen in, for example, the US.

Still, to address this trend, Deutsche Bank created its Private Institutional Client model in late 2009, and rolled it out in London, then Hong Kong and Singapore. Mahdi describes it as a joint venture between the wealth management and investment banking businesses.

"We try to provide institutional-level coverage to large family offices," he says. "We treat them like pension funds or hedge funds and give them the same level of expertise, pricing and services that large institutions would get from us."

By large family offices, Mahdi says he is referring chiefly to those with $100 million-plus in assets, although an institutionalised approach can be attractive at the $50 million level as well, he adds.

Investment consultants also seem to have noted a similar trend, with Mercer, for example, looking to offer an institutional-level service to private banks (AsianInvestor explored this in the June issue of the magazine).