In 2018, the leaders of an Indian HNI family gathered to discuss liquid investments linked to their wealth, considering they were a multi-generational family group.  The discussion revolved around the creation of a legacy and the reduction of market risks, ultimately leading to the founding of their own family office.  In a like manner, numerous families in India were beginning a comparable journey, looking for organization and professionalism in the management of their wealth.

Since that time, there has been considerable growth in family offices in India.   According to a recent report, the number of family offices has risen sevenfold over the past six years, growing from 45 in 2018 to nearly 300 by 2024.  This development indicates a shift towards more systematic and professional management of investments and succession for wealthy families.

Sundaram Alternate Assets anticipates that this momentum will persist, forecasting a 50% increase in Assets Under Management (AUM) for Indian family offices over the next three years, rising from $30 billion in 2024 to an estimated $45 billion by 2027.  This trend highlights the growing impact of family offices as major institutional investors within India’s financial ecosystem.

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Also contributing to this trajectory is the expected increase in ultra-high-net-worth individuals (UHNWI’s) in India.  According to Knight Frank’s Wealth Report 2024, India is projected to experience the fastest growth in UHNWI population globally between 2023 and 2028.  It is anticipated that the number of UHNWIs in the country will increase by nearly 50%, growing from 13,263 in 2023 to around 19,908 by 2028.  The demographic growth is set to further drive the development of family offices and their investment endeavors.

Family offices are crucial to the economic development of India, as they direct capital into ventures with high potential, back startups, create jobs, and participate in philanthropic activities.  Traditionally, family offices in India invested in established sectors, but now they are actively diversifying into emerging and high-impact areas such as semiconductor technology, robotics, space exploration, and renewable energy. This shift aligns their investment philosophy with innovation and future readiness.

In order to make investments of this nature, one must possess extensive knowledge of financial frameworks, business models, industry trends, and founding teams’ capabilities. Moreover, one must be able to adapt quickly in response to the fast-paced changes in India’s startup landscape.

Thorough due diligence is a crucial aspect of this process. Due to the high-risk and unstructured nature of early-stage businesses, family offices must conduct comprehensive due diligence to evaluate the alignment, feasibility, and risk exposure of a startup fund or venture.  This entails examining the business for yellow and red flags, confirming the management’s vision and values, and making certain that the expectations of the family office align with those of the startup’s promoters.  This diminishes the probability of future disputes and increases the chances of shared success.

Investing in early stages entails distinctive challenges, such as risks to reputation, political exposure, and governance concerns.  Major risks related to corporate governance may include financial reporting inaccuracies, related-party transactions that are not disclosed, inflated operational metrics, and regulatory liabilities that are concealed.

In order to reduce such risks, family offices frequently carry out a comprehensive due diligence process. This process encompasses assessments of integrity, ethics, and governance; operational due diligence; adverse media investigations and reputation evaluations; checks for Politically Exposed Persons (PEP) and sanctions; as well as profiling and background verifications of key and senior leaders.

This proactive and comprehensive strategy serves to shield the financial interests of investors as well as protect them and associated stakeholders from reputational damage or financial losses that can result from unsuccessful investments.  In a context where transparent and trustworthy data on startups can be scarce, meticulous pre-investment due diligence serves as an essential safety net, providing clarity and assurance.

With the rapid advancement of India’s ambition to turn into a $5 trillion economy, family offices are evolving beyond their traditional role as wealth custodians.  They are progressively evolving into visionary catalysts for innovation, entrepreneurship, and inclusive economic growth, playing a central role in shaping the future of Indian enterprise.