Lifestyle options. Asset diversification. Strategic vision of the family. Succession planning. Tax advantages.
These are some of many reasons why India's ultra-rich families are mulling setting up family offices overseas.
AsianInvestor spoke to Jai Rupani, principal and chief investment officer of the Dinesh Hinduja family office, about some of the drivers and dynamics of this emerging trend.
“To build a family office overseas, you need at least $20 million (to be taken seriously). International bankers will only entertain you as a client if you have that," Rupani told AsianInvestor.
On top of that, they will expect you to reach the $50-million mark very quickly because it makes it worth their while."
Rupani is also founder of a single family office network called Aikya Connect.
The Mumbai-based family office manages the personal wealth of Dinesh Hinduja, one of the co-founders of Gokaldas Lifestyle, whose precursor was Gokaldas Exports, India's largest garment exporter.
Rupani oversees investments across all investment classes, both in public and private markets.
NOT ABOUT TAX ALONE
The family office CIO said there are a wide range of reasons why wealthy families set up offices overseas -- and it’s not always about tax incentives, as proposed by some experts.
“A billionaire in India may move about $50 million overseas for diversification. For instance, the next generation may be living in New York, and they might have businesses there or want to start investing there. So the money overseas is part of succession where the patriarch or promoter gives them 5-10% of the family wealth,” he said.
“The patriarch themself may have no reason to leave India; they immensely enjoy the lifestyle here. It just comes back to the age of the person controlling the money."
“It can also be part of the strategic vision of the family – to have investments overseas, and this can also be part of the succession planning."
The process, however, is not always simple; nor can it always be done quickly.
"Having this kind of succession in place can take up to five years. It’s not just about moving money; it’s about having trust structures in place, hiring consultants to help with planning and other matters, and so much more,” said Rupani.
Nevertheless, the veteran investor acknowledges that jurisdictions like Dubai and Singapore have become popular for family offices, partly because of favourable tax treatment for single family offices.
“They also offer a better lifestyle, and when money is no object, why not?” he said.
Singapore, Hong Kong and Dubai have also introduced several measures to woo family offices.
Singapore, in particular, is attracting the attention of wealthy Indian families as a potential destination for a family office, several wealth managers told AsianInvestor recently.
Rupani said these jurisdictions also offer the opportunity to make various investments not available in India.
“India has many investment options, but in the end, compared to international markets, it’s still very shallow. India is like a lake, while international markets are like an ocean.”
“There is more access to intellectual capital and financial products outside India. So I do see more interest in Indian families wanting to set up family offices overseas – it’s a big trend that has emerged,” he added.
Image credit: Richie Chan / Shutterstock.com
Collaborating with other family offices is another key trend Rupani has observed. That is why networks such as Aikya Connect are essential, he said, adding that such collaborations don’t happen overnight.
Aikya Connect, founded by Rupani about two years ago, is a by-invite only investment network for senior investment professionals of single-family offices. The network has about 50+ family offices with a cumulative investable corpus of about $25 billion.
“Families need to talk to peers facing the same investing and other challenges, not just salespeople trying to sell them investment products,” he said.
LONG TERM THINKING
Nevertheless, for wealthy families new to the idea of setting up family office to manage their personal wealth for the long term, it’s important to lay out a strategic vision and plan for managing the office.
After all, running a business and running a family office are entirely different, noted Rupani.
“As a promoter, the head or patriarch wants complete control and runs the ship. The promoter needs to understand that if they are not from the financial world, the skills that made them successful in running the business will make them burn money or even lose money in a family office.”
“In the business, the promoter was paid to take risks,” he said.
“But with a family office, the most crucial goal is to preserve capital and growing it comes second. Loss of capital is tough to recover from. Loss of return on capital can still be survived. It requires a team and many trusted advisors to run a successful multi-asset single-family office.”
He noted that one of the most common challenges (as many are small family offices) is that they all follow specific preference patterns of the patriarch or the next generation.
“When setting up a multi-generation family office, it is imperative to figure out early on who made the money and who is calling the shots. The task then is to build a team around that.”
Since different family members have different needs, a family office can manage several portfolios, each with its risk-reward profile, he added.