Family offices spin off wealth, diversify into startup investment: PwC report

Family offices are increasingly investing in startups, diversifying their portfolios, and seeking higher returns as they are shifting away from traditional forms of investment, a recent PwC India report said.

So far in 2024, there are over 300 family offices in India, as against the 45 in 2018. This is expected to rise rapidly, with several company promoters building impressive businesses in Tier 2 and Tier 3 cities, the report titled 'Creating Holistic Value for Family Businesses' said.

Noting that the Indian economy is on a roll, the report said that contributing to its expansion are family businesses, both large conglomerates and small-to-medium-sized enterprises who are shifting from traditional investments to strategic risk mitigation and exploring opportunities in emerging markets. Their investments span manufacturing, retail, real estate, healthcare, and finance sectors.

Among Indian family offices, fintech is a key attraction that raised a total funding of USD 853.6 million in CY23., the report said. Indian family offices are also setting up abroad to tap global investment opportunities.

"...family offices have catalysed the creation of jobs, entrepreneurship and a culture of self-reliance in the country, unlike those that have gone south due to a lack of adaptability, succession planning, innovation, and effective governance," the PWC India report observed.

It further details how family offices have evolved from wealth preservation units to sophisticated entities driving impactful and responsible investing, Jayant Kumaar, partner, Deals and Family Office Leader at PwC India, observed.

"Their evolution from wealth preservation to impactful investing is crucial for sustainable growth and positive societal impact. Addressing trust, succession planning, and risk management will be key to their success," Kumaar said.

Family offices also face some challenges - like building a culture of trust and professionalism. Succession planning is also a key concern. While 9 out of 10 publicly traded companies in India are family-owned or controlled, only 63% of Indian family business leaders say they have formal governance structures in place, including shareholder agreements, family constitutions and protocols, and even wills, the report noted.

Business owners, however, acknowledge that protecting the business, growing it, and passing on the legacy to the next generation are key long-term goals. However, a lack of clear leadership transitions, decision-making processes, and governance frameworks can hinder the smooth transfer of wealth and create conflicts within the family.

Another real concern is cybersecurity threats, regulatory compliance, and privacy concerns making a strong risk management framework an imperative today, the PwC India report said.