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Family offices tie up to make direct PE, VC investments
- Each family office will act as an ‘investment manager’ for the deals they are leading
- direct investments account for 12% of the average family office portfolio allocation in India
Driven by a lack of consistent returns and high management fees in private equity (PE) and venture capital (VC) funds, several Indian family offices are coming together to form a consortium to make investments on their own.
Family offices are an important source of capital for PE and VC funds raising money domestically, since institutional investor participation in such alternative funds is low compared to the West.
The proposed ‘Family Office Consortium’ is the brainchild of Waterfield Advisors Pvt. Ltd, a multi-family office and advisory firm started in 2011 by Soumya Rajan, a former Standard Chartered banker.
“It is early days for the consortium and the intention is to encourage deal flow and participation. As a first step, 20 families who are active in the alternative investment space are engaging with each other to discuss and debate the best manner of collaboration,” said Rajan.
For now, each family office will act as an “investment manager” for the deals that they are leading, with Waterfield Advisors helping to facilitate the sharing and exchange of information between participating families, she said.
“This may morph into a more formal structure in the future, though the present aim is to create a structured environment to encourage deal flow at a national level, undertake due diligence and tap into the domain expertise of the participating families,” added Rajan.
The idea to form a consortium of family offices comes at a time when a growing number of family offices are looking at direct investments.
According to ultra high networth individual (HNI) and family office membership network Campden’s Family Wealth Report 2018, direct investments (PE and VC) account for 14% of the average family office portfolio allocation globally.
The number in India isn’t very far from the global average, with 12% allocation to direct investments, said Rajan. Some renowned family offices that are active in direct investing include Azim Premji’s PremjInvest, Narayana Murthy’s Catamaran Ventures and Pawan Munjal’s family office.
Planning more direct investments, rather than going through the more conventional route of investing capital in a professional PE or VC fund manager, is driven by past experience of these family offices.
“While initially Indian families started to better understand the alternative investment space by investing in PE and VC funds, the experience was very varied, with returns through funds being largely inconsistent and fund management fees being fairly high. This, in turn, prompted families to consider taking direct stakes in companies where the family could exercise greater control on their investments,” said Rajan.
For entrepreneurs, raising capital from a family office or a group of family offices could be relatively beneficial, given the longer investment horizon of these investors and the sector expertise they carry, having run successful businesses themselves.
“Family office capital has traditionally always been patient capital and unlike a fund which has a predetermined life, the Consortium can provide a longer runway for exit, thereby optimising for returns,” said Rajan.
The Family Office Consortium will look at deals across sectors and investment size.
“This is particularly advantageous to families who want to experiment with co-investment opportunities. The objectives vary from family to family and include growth, venture, buyout, private debt and special situations. It is agnostic to listed and unlisted opportunities,” said Rajan.
To be sure, some industry experts feel that while direct investing by Indian family offices is bound to increase, family offices investing together as a group might be a complex structure to manage.
“While family offices are increasingly keen on more direct investments, they could face challenges in asset management, as it involves deep engagement with the investee company, which a PE fund manager is more suited in terms of alignment. Also, multiple family offices investing together could be operationally complex,” said Mumbai-based Ankit Bengani, who manages his family’s investment office.
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First Published:26 Aug 2019, 12:11 AM IST
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