Where Do HNIs And Their Family Offices Put Their Hard-Earned Wealth?
India’s economic growth story is still being written and it is obviously characterized by an optimistic and bullish sentiment. An integral part of this growth narrative is the country’s sizable HNWI and UHNWI population. According to The Family Wealth Report of 2018, by Campden Research, India has about 150,000 UHNW families with a cumulative net worth of $2 trillion. With the projected growth rate, this number is expected to rise to 400,000 UNHW families with a net worth of $5 trillion by 2025. With such vast amounts of wealth being generated, there is an obvious need for professionally handled wealth management services, and this is where family offices are stepping in. Currently, about 49% of UHNWIs have formal family offices and there are more than 100 all over India. However, this space is bound to grow as more and more business families look to personalized and customized wealth management solutions.
Another question that comes to mind when talking about HNWIs & UHNWIs and their family offices is where do they put their hard-earned wealth? The answer to this question is dynamic in nature and constantly changes depending on the global economic outlook. And although there are very few specific studies/reports that track where HNWIs & UHNWIs and their family offices invest their wealth, it is safe to say that there is an increasing preference for financial assets over physical assets. This shift can be attributed to the convenience of buying and selling financial assets. Financial assets also provide the benefit of liquidity and ease of operation.
The accent is more towards a customized solution that evolves over a period. While standard metrics of risk, return and liquidity serve as broad guideposts, the investment philosophy for each family develops over multiple interactions. Asset allocation frameworks that are built on personal experiences and values are usually robust and stand the test of time while those that retrofit quantitative models without understanding this personal aspect frequently find themselves questioned.
While diversification is an important aspect while choosing an asset class, recent events have shown that correlation across asset classes and across geographies has only increased. So, looking at an asset class from a point of view of what its role would be in the future is as important as extrapolating past trends and data. This again needs in-depth analysis and strength of communication rather than going by the flavor of the season. Family Offices have the power to keep a tab on the underlying fundamental financial aspects rather than just going by intermittent market trends.
Impact investing is a positive trend that is emerging and gaining traction across the world. There is scope for investments to make financial gains while also allocating for social or environmental impact. Again, while nomenclatures like ESG investing have gained trend, there is a tendency for this to be misinterpreted and over-simplified. Real impact investing must gel with an HNI/UHNI’s personal interests and values and synchronize with their underlying investment philosophy. With the rapid changes in technology and the evolving nature of the business, there is a great scope for HNWIs & UHNWIs to play a significant role in the social sector by way of their investments.
Last but not the least, after having secured these multiple and ever-changing avenues for investments, family offices also look after preserving multi-generational wealth for HNW and UHNW families. Multi-generational wealth is hard to sustain, hence family offices work closely with HNI and UHNIs to help them secure their wealth by offering services such as estate planning, succession planning, drafting of wills, creating trusts, and even mentoring of the next generation in order to secure wealth and preserve it for future generations.
