By Himanshu Kohli

The recently published Global Family Office Report 2023 by UBS highlights the major allocation trends of family offices in 2022 and the changes in the strategic asset allocation, which they are planning to make in 2023 and over the next five years.

As per the report, in 2022, the share of the traditional asset classes was 55% while that of alternative asset classes was 45%. Regarding alternatives, the family offices made a significant shift in this segment by increasing their allocations to hedge funds from 4% in 2021 to 7% in 2022.

In the next few years, family offices plan to make big shifts in their strategic asset allocation by increasing the share of developed market fixed income and emerging market equities. They will also continue to include alternatives in their portfolios for diversification purposes. These trends are broadly in line with what we have observed in India as well.

In India, the financialization of savings is the new trend wherein investors gradually move from investments into physical assets to financial assets. On the one hand, investors are building their equities portfolio, which has become a mainstream asset class for HNIs and retail investors, while also taking exposure into alternatives where there is a trend of diversifying beyond the traditional markets and asset classes.

Investors are diversifying into other geographies or asset classes more for risk mitigation rather than just enhancing the total returns from the portfolio. As far as wealthy families in India are concerned, they have increased their allocation to alternate asset classes, and private equity /unlisted space has become a mainstream asset class in their portfolios. These families are also considering investment options like REITs or InvITs and are looking at international investments, which are a part of the alternative asset class.

The LRS has been a popular option for investments in international markets, as seen by the fact that in the past ten years, the quantum of assets under this scheme has grown by more than 25 times. However, the recent budget proposal of increasing the TCS rate from 5% to 20% will undoubtedly reduce the flows into this segment in the short run, but at the same time, options like feeder funds and GIFT City will benefit from this change.

Over the last few years, we have also advised our investors on immigration by investment. Since the advent of COVID-19, we have seen families willing to shift base to some other part of the world and, in this way, explore a backup and Plan B, which can become their primary plan. HNIs have taken advantage of the Golden Visa program other countries offer or are considering EB-5 visa options for the US, and these trends are growing faster.

We firmly believe that the India story is intact because of the solid macroeconomic fundamentals, while India is still relatively expensive vis-a-vis the world average. However, India is more or less in the fair valuation zone compared to the country’s valuation in the past ten years.

On the other hand, global markets have shown an improvement from the valuation point of view, and currently, developed markets, excluding the US, are in an attractive zone. On account of the reasonable valuations, once inflation and interest rates come down globally, more money will come into India as the FPIs start reallocating their asset allocation model. This means that global Investors will invest more in India while Indian investors will continue to diversify beyond India.

In the current scenario, despite the global headwinds, we continue with our allocation into international investments in our model portfolio as they provide geographical diversification to our clients and allow us to take exposure to large economies, new-age themes, and unique asset classes.

(Author is Co-founder, Client Associates)