Richa Karpe, director-investments, Altamount Capital Management, spoke with Akash Joshi of The Financial Express about the their first-of-a-kind service of a multi family office and the exclusive looking after of the wealth needs of ultra high net worth (UHNW) families. She explains what wealthy families need to focus on and how ready the Indian market is for such a service. Excerpts:
•How would you catergorise your service as different from the current wealth management services that are on offer in the market place?
We are the first of its kind, independent, dedicated Multi Family Office in India. We exclusively look after the wealth needs of the UHNW families with investible assets of over 75 crore and above. We look after the entire pie as opposed to a piece of the pie of family wealth and hence have a concept of assets under supervision as opposed to management. We are independent and not aligned to any institution and have no other conflicting lines of business ? for example brokerage, banking, etc. We do not manage any in-house products like PMS, etc, and this independence is the key in truly identifying the best of breed managers for our families. We do not have a product fee model as we do not make any fees from selling products like mutual funds. Apart from providing traditional wealth services, we focus on non-traditional services like succession planning, philanthropy, offshore concierge services, direct investment in Indian and international art and Indian and international real estate. We also evaluate direct and co-investing private equity opportunities for our families.
•What is your assessment of the Indian market and what do wealthy families need to focus on while planning to manage their wealth?
Wealth has imploded in the last decade. However, the Indian wealth management industry is still in its nascent stage. Wealth managers have not been able to offer families a systematic approach in managing their wealth and have ignored important areas such as legacy planning, family corporate governance, and asset allocation at a holistic level. They have largely remained product-driven and focussed on revenue generating products.
Wealthy families need to focus on how they can escape the three-generation trap. ?Shirtsleeves to shirtsleeves in three generations,? is a popular saying that is backed by a study that suggests that without effective planning, 60% of the families lose their wealth by the second generation and 90% of the families loose their wealth by the third generation. Effective and frictionless inter-generational transfer of wealth and training of the younger generation to take on their legacy is one of the biggest challenges for wealth families.
•Do you think the Indian market is ready to accept such services?
There has been a huge gap in addressing the wealth needs at the top end of the market for Ultra Wealthy families. According to the Celent report there are 20,000 families in India with an investible surplus of 40 to 120 crore and 6,000 families that have an investible surplus of over 120 crore. Up until now, there was no institution that exclusively addresses the needs of this segment. The current wealth management industry caters to families with assets of any where from 0.5 million upwards. We have exclusively focussed on the needs of this segment and developed our product platform to cater exclusively to them. For example, most of these families are currently served by a number of advisors ranging from banks, private wealth management arms, brokers, chartered accountants, etc. To address this issue, we acquired a state-of-the-art international family office reporting software that allows the family to get an aggregate view of their total wealth and then broken down by family members, family groups, advisors and asset classes. Our families can not only see how their aggregate wealth is performing over time but also see how that wealth is being managed through detailed performance reporting and attribution and contribution analysis across managers. Again, no institution has been offering any philanthropy guidance in a serious manner. We have a platform from which our families can opt for a range of solutions from simple giving and getting feedback on that to creating their own trust to engaging themselves in playing a leading role in ?impact investing? because of our access to the international family office network that has over 600 single and multi family offices globally.
There is a definitive need for independent firms such as ours to sit on the same side of the family and on their behalf, assess in an independent fashion, the various investment options and their providers and advise the most suitable investment strategy for the family on both traditional and non traditional assets.
•Typically, India is a country with vast cultural divergence. How do you think you could deal with such a diversity?
While there are cultural diversities in India, the challenges of managing and transitioning wealth of the ultra wealthy families have always been the same globally. However, we are seeing some differences between families that have old wealth and the new generation of entrepreneurs that have created incredible wealth in the last 15 to 20 years. These entrepreneurs are more aware of the issues and challenges of managing their wealth and are also more open to do something about it.
•What are the challenges you see here in India for dealing with wealthy families?
The concept of a family office has been popular in the west (US and Europe) where wealthy families with wealth in excess of 100 million, set up their own family offices or use multi family offices to manage their wealth in a professional and independent fashion. In India, typically, families have used their trusted advisors or CFO?s to manage their wealth.
Although some leading families are aware, we will need to educate the families about the concept of a multi family office, specially in the areas of legacy planning, independent advice on manager selection, family corporate governance and consolidated reporting, etc.
Another challenge would be that some families may not be amenable to sharing information easily and require a high level of confidentiality. Being a boutique firm, we are more geared to managing this issue and our systems are geared to ensure this confidentiality is maintained both internally and externally with our partners.
•What are the critical issues that families deal with in managing their wealth?
Families want to generate a reasonable rate of return. At the same time, they are concerned with capital preservation. However, when markets are booming, they do not stick to their agreed asset allocation. Research shows that the 94% of the portfolio performance is attributable to asset allocation. From being a simple philosophy of ?don?t put all your eggs in one basket,? asset allocation needs to encompass ?alpha generation? and ?risk management.? They are also concerned about how their legacy can carry on and how they can plan effective succession. Trust as a tool has been very popular internationally but in India, families have used wills, which is not necessarily an effective tool for legacy planning and succession.
Though families have philanthropic aspirations, they have not done much in the past due to a basic mistrust of the system and lack of feedback mechanisms.
•How do you deal with a situation when there is more than one power centre in a family and hence differed views on goal and allocation?
It is difficult. Usually it takes time for the family to trust you. Also, we try and help families formulate investment committees with rotating chairpersons. Decision-making is also on a consensus basis and voting system.
4-step family engagement process that results in the multi generational plan
Step 1
•Family information
•Identify goals/milestones
•Investment risk profile
•Meet the family and key decision maker(s)
•Collect financial and other information
•Assess risk appetite
Step 2
•Consolidation & analysis
•Family investment philosophy statement
•Assess family needs
•Detailed financial analysis
•Identify gaps
•Asset allocation
•Develop family investment philosophy
Step 3
•Present the family multi generational plan
•Investment strategy
•Legacy planning
•Philathropy
•Family governance
•Agree on plan
Step 4
•Implement plan
•Consolidated reporting
•Investment advisory
•Performance monitoring
•Periodic reporting
•Family presentation and review