Indian family offices placing significant bets on foreign ventures

Indian family offices placing significant bets on foreign ventures

The total investments made under the Liberalized Remittance Scheme climbed by over three times, from $441 million in FY17–18 to $1,256 million in FY22–23, according to RBI statistics.

Family offices have expanded their presence in foreign markets, concentrating particularly on US new-age IT firms, such as the FANG stock group.

Family offices, which often engage in a variety of asset classes, are gradually growing their exposure to foreign assets. US-based enterprises are becoming more popular due to reasons such as diversification, a declining value of the rupee, and simpler access to international markets.

Those who are aware of the situation claim that family offices have expanded their presence in foreign markets, concentrating particularly on cutting-edge US technology firms such as the FANG group of stocks (Facebook, Amazon, Netflix, and Google).

The Liberalized Remittance Scheme (LRS) saw total investments rise from $441 million in FY17–18 to $1256 million in FY22–23, which is consistent with statistics from the Reserve Bank of India (RBI) supporting this notion.

All resident Indian people, including minors, are permitted by RBI to freely remit up to $2,50,000 every financial year for any current or capital account transaction—or both—that is approved under the LRS.

Globally, family offices are making investments in robotics, renewable energy, AI, and healthcare, according to Nakul Beri, senior managing director of Waterfield's Global Client Origination.

According to Sraboni Haralalka, co-founder of Woodhouse Capital, a number of American healthcare start-ups are contacting family offices in India about potential investments. If the family offices think the concept is intriguing, they may contribute a reasonable sum to the start-ups.

According to Himanshu Kolhi, co-founder of Client Associates, family offices allocate 50–60% of their investments in the US, 20% in developing nations like China, South Korea, and Brazil, and the remaining 20% in developed nations like Europe and Japan, depending on the products that are available.

What caused the rise?

According to analysts, the primary drivers of family offices' increased foreign investment include diversification, a declining value of the rupee, and simpler access to international markets.

Anuj Kapoor, managing director and CEO of JM Financial's Private Wealth Group, said that "access to information, easy digital investing platforms, especially global advisors chasing Indian family offices have all recognized the need to geographically diversify their financial portfolios." He went on to say that they aim to do rid of their previous local bias and invest in international stocks in order to take advantage of global growth.

Family offices participate in international markets as one means of diversification because of the Indian rupee's gradual depreciation against the majority of foreign currencies and times when Indian equities markets seem bloated, according to Haralalka.

Another factor contributing to the rise in remittances is the emergence of several new avenues for investing in international markets in recent times. Feeder mutual funds provided investors with more access to international stocks, but as of right now, that ceiling has been reached, according to Shravan Sreenivasula, Executive Director, Investment Solutions Group, Avendus Wealth Management.

One of the most recent is via GIFT City, which enables family offices to establish their family investment fund (FIF) and make international market investments. An FIF at Gift City has received several applications from family offices. The family office of billionaire Azim Premji has received the first and only in-principle permission from IFSCA so far. Sreenivasula said, "Those who applied and those who are still waiting to apply are hoping for further approvals from the regulator soon."

A break in the outflow of remittances

In the meanwhile, the modified Income Tax Act, 1961 raised the tax on outward remittances (LRS) from 5 percent to 20 percent, effective October 1. A portion of the public thinks that the recent halt in foreign money transfers for investments is the result of an increase in LRS taxes.

"It becomes an administrative hassle, but one can claim back the 20 percent tax collected at source," Kolhi added.