By Rajmohan Krishnan
Can you have too much money?
While that’s a problem most of us would welcome, the fact is, the more wealth you have, the more time and effort you expend managing it. Making sure your wealth is taken care of and continually grows to meet your family’s and future generations’ demands while positively impacting society can become an all-consuming, full-time activity. If you are an ultra-high net worth (UHNI) individual, time and attention are two resources that are in constant short supply. That’s why you have investment advisors, you say? Of course. But are they enough? Managing your wealth is one thing; enabling it to consistently thrive in an environment that serves your nuanced expectations and needs is entirely different.
Multi-Family Offices are intentionally focused, not on the numbers, but on the purpose of wealth—whether to ignite dreams, bring about societal change, manage intergenerational aspirations, or more. MFOs understand that wealth is an enabler, a means to an end, and not the end itself.
How Family Offices Make A Difference To UHNIs
For example, consider Arun. Arun is a three-time startup founder who understands how critical funding is to a fledgling startup. The initial injection of funds doesn’t just give founders the capital to take their startup from idea to execution. It also changes the way they look at their business. Arun remembers the mind-shift he experienced when he got his first-ever round of funding. The biggest rush of his life was that someone believed in his idea and was willing to put money behind it. Today, Arun wants to hold the door of opportunity open for others. His Family Office will not only advise him on suitable private investments and the proper strategy to employ but will also help identify the right startups that fit Arun’s criteria,
conduct interviews, and do whatever is necessary to bring Arun’s vision to life.
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While Arun’s story is fictitious, it represents how Family Offices work. According to Knight Frank’s 2021 Wealth Report, UHNI’s will grow globally by 27% between 2020-2025. In India, that growth is expected to be at 63%, the second-fastest development in the world. Here’s why we believe each of those UHNIs needs a Family Office (FO):
Optimized Investments: Rather than diversify across multiple portfolios with limited returns on each, the FO, with its oversight, maximizes returns through optimized capital allocation. A Multi-Family Office also has more leverage and investment opportunities with pooled resources across families, thereby attracting higher-quality investment options. MFOs choose investment options that are best suited to the family as they are not constrained by financial programs to which they are aligned. For example, startup funding has emerged as a lucrative investment contributing to as much as 30% portfolio returns. While Family Offices have already made 1700 startup investments between 2014 and 2019, that number is expected to grow 5-fold by 2025. If investing in a startup doesn’t align with the ethos of the family, the Multi-Family Office will advise the UHNI against entering the most popular sector today. With zero conflict of interest, MFOs are the best option for UHNIs who want to be better custodians of their wealth and have more control over their investments.
Compounding Efficiency: The Multi-Family Office is an extension of the family. Need the car serviced? The MFO will take care of it. Need to commission a painting for a loved one’s birthday? No problem. Need to decide whether to invest in real estate or fund a startup? The MFO will advise you with the necessary facts and figures to make the right decision. Combining investment, legal, tax, concierge, and governance services, the Multi-Family Office is well-equipped to handle anything and everything. Having experts who have your best interests in mind to manage the complexities of your life and that of your family increases your efficiency and reach.
Elasticized Services: One size does not fit all when it comes to your family’s requirements. The MFO offers made-to-measure services that can be tailored to your specific needs across various seasons of life. As a trusted custodian of family matters, the Multi-Family Office is uniquely placed to support every family member in any capacity. While MFO services mainly revolve around wealth management and succession planning (see image 2), MFOs are an extension of the family and fully aligned with their needs. As a result, most Multi-Family Offices extend beyond non-financial services to include travel arrangements, education preparations, lifestyle and health planning, and much more. With the ability to pick and choose what you need and scale at will, using MFOs ensures the simplification of a complex, intergenerational tangle.
Planning For Perpetuity: While investment advisors have an immediate focus on increasing wealth, Multi-Family Offices plan for the next generation. Closely aligned with your goals, the Multi-Family Office works with perpetuity in mind. Most MFOs have an investment horizon of 10+ years. This ensures that the UHNI’s investments are insulated against the vagaries of market fluctuations, rising environmental concerns, and unstable socio-political governance. Often referred to as having ‘patient capital,’ Multi-Family Offices and UHNIs have the luxury of taking their time and investing only after they are confident that it will be beneficial. This helps guarantee the longevity of wealth for generations to come.
Personalized Attention: Most Multi-Family Offices are small, well-run teams that are wholly focused on the family’s needs. Unlike large investment brands with their targets, margins, and own brand to protect, the MFO is service-oriented, with the family’s well-being at the heart of everything it does. This service-based approach reduces conflict of interest and ensures that the MFO is wholly aligned with the family. After all, the Multi-Family Offices’ success depends on the family’s success. This puts UHNIs in the driver’s seat of their future.
The origins of the Family Office can be traced to the 15th century when influential Italian families had teams of advisors to look after their affairs. Then in 1838, the family of art collector John Pierpont Morgan instituted the House of Morgan to manage their assets, the first modern version of the FO. Over time and through a series of acquisitions, that entity became JP Morgan & Chase, the largest bank in the US. In 1882, J.D. Rockefeller enlisted the services of Frederick T Gates to help manage his expanding wealth, which became the world’s first full-service Single Family Office.
FOs have been around for a while because they bring value and offer UHNIs a better way to manage their affairs. And as the number of UHNIs increases in India, Family Offices will continue to ensure that their wealth works for them rather than the other way around.
(Rajmohan Krishnan, Founder, Entrust Family Office. The views expressed are the author’s own. The views expressed in the article are of the author and do not reflect the official position or policy of FinancialExpress.com. Please consult your financial advisor before investing.)