Family offices, or entities investing the wealth of businesspersons or families, are likely to allocate a larger chunk of their capital in alternative assets going forward, mirroring the global trend where family offices invest almost half of the corpus to the asset class, according to a new report.
In its latest report, From Legacy to Leadership, Mumbai-based asset management firm Sundaram Alternates said that family offices in India will likely increase their exposure to alternative assets by about five percentage points in the next three years, taking the total allocation to about 18% in their respective portfolios.
“The shift reflects a strategic move toward diversification, niche investment strategies, and active participation in India’s growth story, particularly through startups and innovative ideas,” the report noted.
Family offices in India often operate based on their individual investment thesis. While some may choose a conservative approach, investing none to about 5% of their capital in alternative assets, others may allocate a higher corpus to the asset class, as per VCCircle’s interactions with family offices and their wealth managers.
Among other expected changes in asset allocation, the report anticipates that these entities’ exposure to mutual funds, portfolio management services, alternative investment funds, and gold will likely see modest increases, while allocation to fixed income and physical real estate may decrease. The allocation to startups will likely remain stable as family offices will continue exploring opportunities in this area.
AIFs, specifically, are gaining traction among Indian family offices as a preferred tool for accessing private markets and startups, the report noted. The primary advantage for family offices, the report said, is that they offer access to a diversified portfolio that helps mitigate risks compared to single investments. The expertise of AIF managers in selecting opportunities is another catalyst, it said.
With the changing allocations, the size of family offices, a key determinant of its pace and investment strategy, may see an increase.
According to Sundaram Alternates, the assets under management of mid-and-large-sized family offices may increase at an annualized rate of 14% over the next three years. This highlights “the significant evolution of family offices as they transition from wealth preservation to a growth-focused mindset,” it said.
However, family offices in India struggle to attract and retain talent, the report’s findings showed. It said that over 55% of the respondents flagged it as a primary concern, although the report did not specify the number of family offices surveyed.
The report noted that family offices require specific skills such as understanding the family vision, aligning with the parent entity’s philosophy, and navigating complex family dynamics, which increases competition for talent.
“As they navigate this complex landscape, it is crucial that they remain agile and forward-thinking to capitalize on emerging opportunities and sustain their legacy across generations," said Vikaas M Sachdeva, managing director at Sundaram Alternates.
India is home to over 300 family offices currently, up from about 45 in 2018, according to a report by PwC India.
