Family offices have long been recognized as key entities in managing the wealth of ultra-high-net-worth individuals and families and providing sound succession-planning avenues.
Traditionally, their primary focus has been on wealth preservation, investment management, and real estate planning. With a somewhat rudimentary start decades ago, family offices in India have transformed into dynamic entities with a broader scope, embracing new opportunities for both financial growth and societal impact.
Investors are navigating through an evolving investment landscape, marked by emerging domestic and international opportunities, while simultaneously encountering unprecedented challenges.
The recent relaxations in regulations by the Indian Government governing overseas direct investment and overseas portfolio investment, coupled with the ease in International Financial Services Centres Authority (IFSCA) rules under GIFT city, provide the right kind of arsenal to the family offices to have a global footprint.
The time is now ripe for the Indian family offices to exploit the global pool of investment opportunities that is now more easily and widely accessible than earlier. They can now access a far wider set of choices of asset classes and avenues for investment like global hedge funds, international bonds, global debt instruments, international real estate, etc.
They can also invest in non-conventional asset classes like private markets and co-investment opportunities globally while at the same time getting exposure to markets and geographies with more favorable tax and regulatory regimes.
The recent regulatory amendments in India have also paved the way for family offices to expand their footprint to newer geographies and forge strategic partnerships and networks with international investors, business syndicates, and industry experts.
Collaborations with global counterparts can enable knowledge-sharing and provide co-investment opportunities. There is also a possibility of collaboration with global fintech companies that can offer Indian family offices opportunities to leverage digital platforms for wealth management.
The present global business environment is becoming dynamic with each passing day and the signing of the Comprehensive Economic Partnership Agreement (CEPA) by the Government of India with various countries recently has added a new paradigm to the opportunities that are available for global investment. One of the most prominent CEPAs that India has inked is with the UAE. This has further opened channels for lucrative investment by Indians in the Middle Eastern country.
Due to its strategic location and inclusive, cosmopolitan culture, the UAE has become an attractive destination for global family offices, including those from India, who can seamlessly integrate with the local environment. The UAE has also implemented noteworthy reforms that are conducive for an Indian family office to establish a base in the UAE. These include the DIFC Family Arrangement Regulations and a policy framework for foundations. The UAE has also launched several immigration initiatives like the Golden Visa, making it easier for family offices to start operations there.
In addition to the UAE, established global financial centers such as Singapore and Hong Kong present enticing investment prospects for Indian family offices. These locations offer favorable and streamlined tax regulations that can be leveraged to their benefit.
Environmentally responsible investing
Given the pressing demand for environmental action, family offices have a distinctive opportunity to make a significant impact by pursuing environmentally responsible and rewarding investments.
As per a 2022 Campden wealth report, sustainable investments among global family offices have experienced significant growth. From constituting 21% of portfolios in 2020, the investments are projected to increase by 38% by 2027.
The adoption of sustainable investing among family offices in the Asia-Pacific region has reached 42%, with 29% of their investment portfolios dedicated to sustainability. This figure has risen by 4% since 2021 and is 2% higher than the global average. The report also revealed a notable focus on specific industries within sustainable investing among family offices in the Asia-Pacific region. Green tech took the lead with 62% of family offices investing in this sector, followed by digital transformation at 52%.
Indian family offices have a compelling opportunity to invest in renewable energy infrastructure, supporting sustainable infrastructure development and the adoption of energy-efficient technologies. These investments not only provide attractive returns but also contribute to the development of a greener and more resilient energy system.
Challenges amid slowdown woes
As Indian family offices set their sights on establishing an international footprint, they must recognize the cultural and market disparities that exist between India and the global landscape. Additionally, they must be mindful of the legal and regulatory complexities that come with international exposure.
These complexities encompass various aspects, including taxation, regulatory compliance, succession planning, asset protection, and cyber security.
Also, family offices may initially have to deal with the challenges associated with accessing deal flow and building networks in foreign markets, as it may require considerable time and effort.
As Indian family offices plan their global journey, they not only need to be resilient but also a bit cautious with the Global business environment becoming increasingly challenging given the slowdown in some of the major world economies.
The Chinese post-COVID recovery has not been as fast as expected, and the geopolitical landscape is continuing to be stressful with the Ukraine/Russia war still raging on. The large economy of Germany has already entered a technical recession.
In the emerging scenario, asset allocation and investing are becoming extremely tricky and carry more risks now. Valuations across asset classes are becoming stretched and that, coupled with high-interest rates, shrinking liquidity, and belligerent inflation, is posing significant challenges for family offices while making investment decisions.
Source : FinancialExpress