Why you should care
Because the money flows of the rich and powerful affect us all.
Like father, like son — or daughter. This is often the way of India, where in a nation of 1.4 billion, only a few families’ names seem to be stamped on everything. In Bollywood, you’ll find Amitabh, Abhishek and Jaya Bachchan all topping film lovers’ lists. In politics, the Nehru-Gandhi family essentially reigned from independence to 2014. And, in commerce, you can find Tata trucks, cell phone plans and classroom content. It’s sobering, at times: A Credit Suisse report last year found India’s 1 percent owns more than 50 percent of the nation’s wealth.
Whether you’re a fan of the dynasties or not, they seem set to continue — though their ways are shifting. India’s big-time business families once made their money in relatively unsexy stuff, with Tata being built on manufacturing, steel and mining, while the Ambani family’s Reliance Industries began with polyesters, fabrics and textiles. Meanwhile, the Birlas — Gandhi’s big corporate backers — began as jute traders. Yet even as these operational industries are enjoying huge moments in the sun, thanks to the prime minister’s pro-manufacturing initiatives, the next-generation heirs and heiresses are increasingly turning away from taking the reins of their mom-and-pop megacorps, away from the business of making things, and toward the world of making their money into … more money.
Families might haul over a bevy of top CEOs and sector experts to vet the pitch of a bright-eyed entrepreneur.
Indeed, where professional fund managers would have once handled things, it’s now all — much — in the family. The technical term: family offices, or private wealth-management groups, tailored to the bloodline’s particular needs, desires and continued plans for dominance. “They are on the rise,” says Gaurav Sachdeva, managing partner at JSW Ventures, whose first funding round came entirely from the Jindal family. Research company Markets and Markets found that the once-handful of family offices rose to 940 last year — and they predict nearly $150 billion will begin to flow from “ultra-high-net-worth individuals” in the next decade. Big ones to watch: Azim Premji — Wipro chairman — whose Premji Invest dropped $90 million on an American cloud company in January, and Infosys cofounder Narayan Murthy’s Catamaran Ventures.
Not all family ventures are “pureblood,” says Munish Randev, chief investment officer at Mumbai-based Waterfield Ventures. You can also find multifamily offices, though they’re rarer. Or take Sachdeva’s JSW, which he says will open to third-party investments in future rounds. Randev’s Waterfield isn’t technically a family office, as they also advise corporations, but they received a major strategic investment from the Patni family (who also run a separate family office called RAAY Global, though it could not be reached for comment). Others still, some say, appear on paper as “trusts” rather than private funds.
These ventures might sound intuitive — you’ve got money, make it into more money, duh — but oddly enough, family offices weren’t hugely popular a few decades ago, precisely because the wildly successful companies could double as personal advisory. Often, says Randev, one trusted guy in the office — a CFO or otherwise — would have counseled on family finance as a kind of “hobby.” But today that’s not enough, thanks to a few trends: the early stage investing craze that has the world in a startup fever and the mealy complexion of private equity performance. (After the financial crisis, private equity returns dropped to a third of prior highs, according to a McKinsey report — from around 21 percent to 7 percent.) Some even chalk it up to the millennial heirs waltzing off to schools in America and coming back seeking something sleeker. “The young generation looks at global trends and doesn’t want to roll up their sleeves and get into the manufacturing and operational headaches,” says Sanjay Aggarwal, senior partner with KPMG in Mumbai.
Which leads into how the game is actually changing: This isn’t just about rich people playing with money in a new fashion. The new investment trends might funnel more money into India’s tech boom, its mobile craze and digital mania, as more Indians end up online by the end of this year than the entire population of the U.S., according to the Internet and Mobile Association of India. And they’re birthing the kind of venture funds many investors would drool over. “You have the intelligence,” says Sachdeva, referring to the smorgasbord of industries dynastic families touch — meaning you might haul over a bevy of top CEOs and sector experts to vet the pitch of a bright-eyed entrepreneur. And that intelligence might flow into preexisting family companies: Once the younger stock learns how, say, ecommerce giants Flipkart or Snapdeal work, how digital wallets run, how company culture varies, they’ll be well-positioned to take their own steps beyond factories and telecom. Already, Tata’s heading the ecommerce route.
You might wonder about the greenness of these millennials; some are becoming fund managers, Aggarwal says. But that doesn’t mean the pros have abdicated entirely. They’re advisers. And the younger generation is still plenty coolheaded. As Sachdeva points out, being responsible for just one family’s money can keep things conservative. “You can’t just throw a random punt,” he says. Not when the dynasty itself is on the line.