The Role of Family Offices in Providing Equity Funding.

A family office is an advisory entity that manages wealth, investment and other finance-related aspects of ultra-high-net-worth (UHNW) families. It takes care of everything from controlling family finances to charitable spendings.

Family office services involve dealing with the services of an investment bank that individuals take to help manage their capital and make it grow. UHNW families handle multi-million funds which require expert services like that of a family office, which ensures professional management and thorough confidentiality.

A family office manages all of the UHNW family’s finance-related needs. Some services provided by the office are investment-centric, wealth management, accounting, financial advising, tax accounting, legal compliance, travel arrangements, educational services, staff salary distributions, bill payments, background check, and charity work.

There are two types of family offices, viz. single-family office and multi-family office.

Single family office – It is dedicated to the financial management of a single family. Its main aim is to centralize business management. There is direct control of staff, making it easy to manage any conflict. Also, the team can concentrate on the affairs of one family. Members need to agree to devote their time collectively.

Multi Family Office – Such an office manages the wealth of more than one family. Since it involves several families, the overhead costs are shared, making it more cost-effective for the management. Besides, having multiple experts and professionals provide a regular stream of expert advice.

Typically, Single Family Offices are broader in scope as they look after a single family’s requirements, whereas the Multi Family Offices offer smaller range of services and focus on core professional skills such as financial and investment management, legal advice and trust and company services. Apart from providing funding to startups and companies, they also provide business connections and guidance to entrepreneurs.

As per estimates, there were around 300 family offices in India in December 2022, and they are expected to increase to 1,000 over the next few years.

Research points to a consistent year-on-year increase in family office allocation to direct, private equity deals. Approximately 80% of family offices are invested in private equity, with about a third exclusively invested in this asset class. Globally, private equity investment now accounts for over 20% of total family office allocation. This trend is expected to continue as family offices embrace a long-term, less risk-averse mindset that prioritises returns over liquidity. Additionally, private equity allows family offices the opportunity to be more actively involved in the investment decision and to potentially participate in the strategic management of the businesses in which they invest. With family offices seeking more control over decision-making and more privacy in their dealings, private equity is becoming an increasingly attractive option.

Family offices in India have become increasingly involved in the venture capital investments in recent years. These offices, which manage the wealth of affluent families, are increasingly investing in startups and emerging companies, often as limited partners (LPs) in VC funds. As per research conducted by Trica, the private equity portfolio of Indian family offices comprises of direct startup investments at 47%, exposure to VC/PE (Venture Capital/Private Equity) funds at 32%, and exposure to venture debt funds at 11%.

This comes at a time when family offices have nearly doubled their allocation to private markets to 40% in the last 5 years, per EY’s findings.

We believe that family offices will continue to play a significant role in investing through private equity. Further this is substantiated by increasing exposure of family offices in startup space as well as direct investment in growth stage companies. Family offices are a key investor in providing capital at the right stage in the form of private equity and going forward the exposure from them is expected to increase further.

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