Thoughts on Family Office Construct – Living Document

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Thoughts on Family Office Construct based on my learnings so far– Living Document

The Objectives of the Family may need to evolve around the following:

  • Ensure Family Harmony, love and affection even if businesses realigned.
  • Protect and enhance the Family Brand and Reputation.
  • Protect and grow Family Wealth and the seamless transfer of wealth.

The family should take complete ownership of their decisions even while they engage Advisors and think of Family Office as a Business.

The Construct can be Formal or Informal or somewhere in between depending on the complexity of interactions, size of the family, needs and decision-making process.

The objectives can be amended based on each family’s goals and objectives.

Broadly the construct can be divided into four buckets:

  • Bucket 1- Alignment on various Important issues including Code of Conduct
  • Bucket 2 – Risk and Financial Planning
  • Bucket 3- Governance
  • Bucket 4 – MIS, Accounting and Compliances

Bucket 1 – Alignment on various Important issues including Code of Conduct

  • Aspiration and Values
  • Long term Goals
  • Legacy and Perpetuity of Institution Vs Monetisation
  • Roles and responsibilities of Family members
    • Alignment among Family Members
    • Conflict resolution
    • Exit Mechanism
    • Entry and Exit from Business
    • Gainful engagement and Social status
  • Family members engagement in Business
    • Role
    • Succession Planning
  • Mentoring Family Members for a seamless transition
  • Wealth Preservation
    • Investment Philosophy
    • Risk appetite
    • Safety, Liquidity, Returns in this order
  • Transfer of wealth
  • Brand Management and Reputation
  • Responsible Citizen
  • Smell test and spirit of the law

Bucket 2 – Risk and Financial Planning

  • Risk appetite
  • Risk mitigation Options
  • Optimize through a deeper understanding
  • Diversification
  • Asset Allocation
  • Overseas Investments
  • Active management of Foreign Exchange Exposure
  • Actively manage Assets Liability Mismatch if any
  • Insurance – Assets, Personal
  • Ring Fence assets through Corporate Structure (one layer removed from Promoter through Trust, LLP, Co, etc)
  • Leverage at Promoter or Hold Co level
  • Minimize leverage
  • Without recourse Borrowing by operating Businesses
  • No Personal Gtee
  • No PDC at a personal level
  • Define rules to give Guarantee on behalf of the Family or Business, as far as possible avoid
  • Cash flows
  • Life Style
  • Safety pot
  • Philanthropy/ CSR and Social Impact
  • Existing Business needs
  • Strategic and Long-Term Business Investment
    • JV:  Minority / Majority
  • M&A: Acquisition / Merger / Demerger / Slump Sale
  • Financial Investment Objectives based on cash flows
  • Safety
  • Liquidity
  • Returns  
  • Financial Investment – Asset Allocation, Direct/through Third Party
  • Direct Equity: Listed / Unlisted
  • Debt Third Party, Direct: Credit Risk / Duration / Arbitrage
  • Commercial Property
  • Gold, Precious Stones ( Jewellery??)
  • Art
  • Investment Management to focus on the following areas
    • Investment Process to  include Softer aspects during Due Diligence
    • Monitoring Performance of the portfolio
    • Increasing Exposure, Maintain, Exit
  • Hold Co Structure
  • Tax Optimisation with respect to the following:
    • Income ( MAT), Separate entities based on the class of assets
    • Income and Assets Distribution
    • GAAR
    • Ease of exit
    • Jurisdiction for Overseas Investment (Avoid Tax Havens)
  • Compliances
    • RBI
    • SEBI
    • Companies Act….

Bucket 3 – Governance

  • Family member to be Chairman
  • Role and composition of the Board
  • Role and composition of the Investment Committee
  • Decision makers
  • Decision process
  • Information sharing
    • What
    • When
    • Whom
  • Brand and IP ownership including Monitoring Mechanism
  • Agenda and frequency of Family meetings
  • Process of engaging with Advisors and their Performance management

Bucket 4 – MIS, Accounting and Compliance

  • Accounting (including asset records)
  • Audit by Third Party
  • MIS
    • Framework linked to complying with the following:
      • Code of Conduct and Governance
      • Investment Policy Statement including Asset allocation
      • Brand
      • Performance Investments
      • Cash Flows
      • Taxation (Direct and Indirect)
      • Legal compliances
      • Dos and Dont’s
    • Frequency of sharing different reports
    • Access for different levels
    • Inventory of all Tangible (including Art) and Intangible Assets
      • Corporate Structure
      • Location
  • Record of meetings
  • Safekeeping of documents

13th June 2019