Almost every person we spoke to today first wanted to know what this “Archegos Capital” debacle was all about. And when we started explaining, the quick retort was, “Is this another Lehman crisis? Will it affect India?” That’s all – that’s the bottomline; if it impacts India then tell us the details or else, well, its ok not to know everything!
To cut a long story short – “NO” this does not affect India and it is most certainly not another Lehman crisis. But what truly emerged as a very interesting aspect, from Indian perspective, is the existence of “Family Office.”
Now to understand this, a little bit of Archegos background. This was a New York based family office which in other words means, Ultra High Net Worth Individuals who set up this ‘family office,’ something akin to a personal asset management company. Now this company, with the huge pool of funds, invests majorly in equity and debt. It was managed by the notoriously reputed Bill Hwang, who is banned from managing funds by regulators in USA and Hong Kong. Hwang was accused of violating trading rules at Tiger Management, a hedge fund. Hwang got around the ban by forming this family office, managing money for the wealthy, as it does not come under the purview of the SEC and no information needs to come out into the public domain. This was the perfect cover for Hwang but then, fate intervened and things went phut.
The prices of stocks he had invested in dropped big time, which in turn triggered margin calls and because he could not bring in the required funds, the banks/institutions with whom he had leveraged - Nomura, Credit Suisse, UBS, Deutsche Bank, Goldman Sachs and Morgan Stanley liquidated their holdings, trying to cut their losses, which as such are running in billions currently.
Now from the Indian perspective, what we need to lookout for is Family Office – if those in India, invested big time, billions in the market, and if the same happens here, won’t it trigger off mayhem and a bloodbath?
Well, the good news is that though family offices here also are outside the purview of SEBI or RBI, culturally, they do not leverage to trade. Avoiding risky ventures is the rule. They typically invest in 10 to 15 stocks only and all with market caps over Rs.3000 crore as it ensures liquidity when required. Also, majority of the family offices use the money mainly to buy back their own stock.
Things actually changed in 2018-19 when Uday Kotak set up a family office to invest his $10bn fortune. Up until then, India's wealthy preferred to reinvest any profits they made back into the family business. Today, equity and debt are the flavour but at the end of the day, it is the family; despite the asset manager in charge, it is the family which calls the shots.
The point is – India’s family offices are not treading on thin ice, yet. But the Archegos incidence has brought them and their working into the limelight. We realise that they cannot be as opaque as they are currently allowed to be. Before a crisis hits us, they too need to be brought under some regulation. Surely, SEBI and RBI would have taken notice too and it will not come as a surprise to soon see family offices too being asked to furnish disclosures.
We should learn lessons from other’s failures so that we can avoid making the same – it’s a pity that Wall Street is a teacher to the world, time and again.
Here is a list of some of the Family Offices in India:
- RNT Associates - personal family office fund of Ratan Tata
- Athra India Ventures - private family office of the K. Damani Group
- Ajay Piramal SFO - family office of the Piramal Group & Shriram Group.
- PremjiInvest – family office of Azim Premji
- Burman Family Office - private investment body of Dabur India
- Aarin Capital – co-owned family office of Manipal Education and Medical Group and Mohandas Pai.
- Catamaran Ventures – family office of Narayana Murthy
- Mahindra Partners - private equity fund of the Mahindra & Mahindra Group
- JSW Venture Fund – family office of Sajjan Jindal
- Startup Investment Fund – realty major, Lodha group’s family office
- RAAY - single family office of the Amit Patni Group
- Innovations Investment Management – family office of Infosys co-founder, SD Shibulal
- The Three Sisters – used to manage the wealth of Rana Kapoor
- Unilazer Ventures - family office of Ronnie Screwvala