Indian Elite Embrace Family Offices

Ganesha's elephant head makes him easy to identify

What do billionaires in India do with their money? The question is more practical than quaint. They can wrestle with myriad financial advisors, plow funds back into their established businesses, or go it alone, investing on a best-efforts basis in selected deals. The fast-evolving option, at least in India, may be to start a family office.

That approach to wealth management could be called pedestrian in the West. In America alone, there are as many as 5,000 family offices. Yet the landscape is different in India. The cohort of Indian billionaires is the first generation of Indians in history—outside of nobility channels—to accumulate such enormous wealth. These riches are largely tethered to domestic economic reforms that were unleashed in the 1990s.

Insiders estimate that there may now be more than 75 active family-office investors in India. That tally is somewhat less than the 100 or so billionaires in the country. The real growth in the number of family offices, however, will be propelled by those with less prominent net worth today. Credit Suisse estimates that there may be 245,000 millionaires in India. We can expect to see many of the sturdier fortunes nest in a single-family office or coalesce into multi-family offices.

Uday Kotak typifies the trend. Kotak is now setting up a family office to manage an estimated $1.2 billion. This capital was sourced from the sale of a portion of his shares in Kotak Mahindra Bank. The liquidation was forced by the Reserve Bank of India, which monitors founders’ share holdings. In context, Kotak started his bank in 1985 with a $50K loan from family and friends. Today he may be the eighth-richest person in India.

One feature of the family-office structure in India is broad family adhesion. Collective activity is derived from the traditional joint-family concept in which many generations of the same family live together in the same house. The arrangement can lead to common pooling of financial resources, with oversight by the family patriarch. These cultural traits are less evident today because of rapid economic development, but they still inform decisions in the modern workplace.

We are cautious about generalization. In India, like elsewhere, family offices have complex personalities. By way of example, we identify a handful of entities that set the tone for their peer group:

Burman Family Holdings is the private wealth arm of the Dabur Group, a leading consumer goods company. The Delhi-based firm is known to be an aggressive investor in sectors with a retail angle, including financial services, hospitality, and healthcare.

RNT Associates may be the premium name among Indian family offices. It operates from Mumbai as the investment channel for Ratan Tata, former chairman of Tata Sons. Often providing mentoring skills, Tata tends to make smaller investments across an array of internet startups.

Unilazar Ventures is the family office of Ronnie Screwvala. The Mumbai-based media entrepreneur invests broadly in the venture space, but typically outside of his core entertainment interests. The firm’s seed capital can be traced to a 2012 deal with the Walt Disney Company.

In a global context, we see two features of Indian family offices that distinguish them from those elsewhere. First, tax evasion is a headline issue in India. Firms are consequently hard-wired to their government accountabilities. Second, income disparity is staggering. The richest 1% cornered 73% of the wealth generated by the country in 2017, according to an Oxfam study. That reality can draw family offices into extensive philanthropic programs.

Our Vantage Point: We expect the number of family offices in India to grow rapidly over the years ahead. As a group, they are poised to become an unexpected, if not outsized, capital source on the global stage.

Learn more at Bloomberg.

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Image: Ganesha is commonly called the Hindu god of success. Credit: Curraheeshutter at Can Stock Photo Inc.

Africa Forges New Billionaires

Shop in Accra displays traditional fabric designs.

Private wealth in Africa continues to gain momentum. According to Forbes, there are now 23 billionaires on the continent. Eight of them reside in South Africa, six in Egypt. The overall number increased by two over the course of 2017. In context, the number of billionaires in Africa is consistent with the number who live in Paris. Forbes estimates that there are over 2,000 billionaires worldwide.

Richest Individual. The wealthiest man in Africa is Aliko Dangote (est. $12.2 billion). His considerable fortune is derived from cement, food processing, and real estate. The Dangote Group runs its operations from Nigeria, but interests stretch throughout West Africa. He is an ethnic Muslim.

New Addition. An interesting newcomer to the list this year is Strive Masiyiwa (est. $1.7 billion). The native Zimbabwean controls Johannesburg-based EcoNet Group. Its subsidiaries include firms in the telecommunications and banking industries. Masiyiwa is active in philanthropic circles worldwide.

Wealthiest Woman. The richest woman in Africa is Angola-based Isabel dos Santos (est. $2.7 billion). Her fortune was largely sourced from her father, José Eduardo dos Santos, the Angolan president between 1979-2017. Known locally as “the princess,” she once ran Sonangol, the flagship conglomerate.

President Trump may want to spend more time befriending his billionaire colleagues in Africa once he leaves office. Assuming that his net worth is valued at near $3.1 billion, he would now rank somewhere between Naguib Sawiris (Egypt) and Koos Bekker (South Africa) on the African list, effectively making him the seventh wealthiest person on the continent by current estimates. Among American tycoons, he ranks only at 248th place, tied with 15 other US billionaires, according to October 2017 data compiled by Forbes.

Our Vantage Point: Like elsewhere, emerging markets in Africa are generating pools of private wealth that are seeping into capital markets. Cliché-ridden views are out-of-place in this increasingly buoyant region.

Learn more at Forbes.

© 2018 Cranganore Inc. All rights reserved.
Unauthorized use and/or duplication of any material on this site without written permission is prohibited.

Image: Traditional fabric designs convey the diversity of African culture. Credit: Malajski at Can Stock Photo Inc.

Beijing Closes Cash Spigot

Gambling is the primary industry in Macau

China is now a less hospitable destination, at least for certain dealmakers. Ernst & Young estimates that Chinese outbound investment is set to reach $100 billion in 2017, representing a sharp decline from the $183 billion seen last year. Beijing blames this decline in part on growing hostility toward Chinese firms in the US and Europe. There is some truth to that point. The bigger issue is that officials are resolved to mitigate the volume of leveraged deals and address attendant imbalances in the domestic economy. Earlier this month, regulators outlined new rules on outbound investment. They specifically targeted excesses in property, film, entertainment, and sports, while advocated investment in infrastructure, oil and mining, agriculture, and technology. This policy clarification streamlines the deal-making process in favor of traditional industries, if not lower risk alternatives. But the macroeconomic context suggests that Chinese investors are likely to move forward at a far more measured pace than in the past.

Our Vantage Point: China remains a dominant player in cross-border investments worldwide. But the integrity of the domestic finance sector is a primary concern, given the muted outlook for economic growth.

Learn more at the Nikkei Asian Review.

© 2017 Cranganore Inc. All rights reserved.

Image: Investment in Macau-based companies has raised the ire of Chinese officials. Credit: Vichie81 at Can Stock Photo Inc.