When we recently wrote about the preferences and experiences of India’s family offices, several fund managers got in touch. They wanted to understand the actual decision-making logic, the qualification process a product must pass before it gets capital.
This is that piece.
The First Principle: Preservation Before Growth
For most Indian family offices, investment discussions start with an unambiguous hierarchy of objectives. Capital preservation is the first filter, growth is second. In the EY-Julius Baer study, “wealth preservation” ranked as the top stated priority for 100% of respondents, followed by succession planning, governance, and compliance.
If an idea cannot demonstrate how it protects capital in adverse conditions through stress-test data, drawdown limits, or uncorrelated return streams, it will not be evaluated further, regardless of performance in favourable markets.
The Non-Negotiables
Across the board, the following criteria are applied before a manager or product even makes it to the portfolio discussion stage:
Alignment with stated goals – The investment must fit the family’s defined objectives, typically set out in a formal Investment Policy Statement. In practice, this means adhering to portfolio role definitions (core, alpha, diversification) and matching risk appetite.
Tax efficiency – With 48% citing changing tax laws as a top concern, after-tax yield is more important than headline returns. Structures that optimise capital gains treatment, dividend taxation, and withholding tax for cross-border flows are favoured.
Liquidity – Portfolios remain structurally overweight illiquid holdings. Real estate accounts for 40 - 60% of net worth in many families, so new investments often need to provide liquidity balance. Target liquidity buckets are typically reviewed quarterly.
Governance and reporting – Manager reputation, operational controls, and reporting standards are decisive. Many family offices now require quarterly audited reporting, independent valuation, and board-level oversight for large allocations.
Failure on any one of these criteria disqualifies the product outright.
Portfolio Architecture
The equity allocation for most Indian family offices follows a core-satellite structure:
Core: Low-cost passive exposures such as fixed income, index funds and ETFs for market-matching returns and stability. In many cases, large-cap index ETFs form 30 - 50% of the public equity bucket.
Satellite: Targeted active bets through boutique PMS or AIF managers, with themes such as clean energy, infrastructure and supply-chain digitisation. High-conviction allocations rarely exceed 5 - 7% of overall portfolio value.
Direct equity exposure remains common, with about 70% of offices holding it, often with sector tilts toward financial services, consumer, and technology. Entry decisions involve factor exposure reviews, historical drawdown analysis, and liquidity impact assessment over multiple market cycles.
Core vs. Satellite Allocation – Global Benchmarks
A KKR survey of over 75 family office CIOs (2023) found that, on average, 52% of assets are allocated to alternatives, a category that often overlaps with satellite strategies, marking a 200 basis point increase from 2020.
Similarly, the J.P. Morgan Global Family Office Report (2024) notes that the average family office maintains a 45% allocation to alternative investments such as PE, real estate, VC, and hedge funds.
Another useful perspective: family offices globally invest ~32% in equities, 18% in fixed income, 18% in private equity, 13% in real estate, 10% in cash, and 6% in hedge funds. Traditional assets often consolidate into the “core,” while alternatives form a large satellite component.
So while there is no single global “core allocation” percentage reported directly, one can reasonably say:
Globally, family offices tend to anchor ~50–55% of their portfolios in core strategies, traditional equity, fixed income, and cash, while allocating ~45–50% into satellites or alternatives.
Alternative and Private Allocations
Alternatives now make up close to one-third of portfolios. Within this:
Private credit – Allocations are split across:
Core credit: Listed debentures with 6–15 month holding periods, targeting low to moderate returns with quarterly coupons.
Performing credit: Larger corporates with strong operating metrics, often structured for three to four year terms and monthly or quarterly payouts.
Special situations: Short-duration (two to three year) bridge finance or last-mile funding, often delivering mid-cap-equity-like returns but collateralised.
Private equity and venture – More than half of family offices allocate up to 10% of their portfolio to PE or VC, with around 25% going beyond 20%. Co-investments with marquee GPs and late-stage growth deals dominate, with ticket sizes capped to prevent overexposure.
Real assets – REITs, InvITs, and yield funds offer cash flows and inflation hedging. As of March 2024, InvIT AUM stood at ₹5.39 lakh crore, up 29% year-on-year.
Structuring Considerations
Investment choices are tightly linked to legal and governance structures. Private family trusts remain the preferred vehicle for intergenerational continuity, offering tax efficiency, probate avoidance, and asset ring-fencing. LLPs and family constitutions are increasingly used for governance clarity, especially in multi-branch families. Products that do not integrate smoothly with these structures are rarely approved, even if return potential is strong.
How Decision-Making Works
Some offices have full-time CIO teams, while others operate through an investment committee comprising the principal and a small adviser group. Regardless of structure, the process is disciplined:
Preliminary screen – Against non-negotiables; most proposals are rejected at this stage.
Scoring – Based on risk-adjusted return, tax efficiency, compliance comfort, and portfolio role fit.
Deep diligence – Assessment of manager incentives, fee transparency, operational resilience, and stress-testing under multiple market scenarios.
Careful selection – Failure on any single core criterion results in immediate rejection, rest move forward in the pipeline.
While relationships still matter, they no longer override processes. A decade ago, allocations could be influenced by personal ties; today they are benchmarked against global peers and must meet formalised thresholds.
A senior principal at a leading Indian family office told me that every allocation decision begins with mapping liquidity flows in the market and building forward earnings estimates, a complex exercise that blends quantitative models with the judgment that only comes from living through multiple market cycles. “We like people who have survived crashes,” he said, “because they have the depth to see beyond the noise.”
That perspective shapes how they think about returns: it is better to compound at 13–15% annually over two decades than chase 17–20% for a brief five-year window. They have also turned their attention to practices such as currency hedging, still rare in India, and to global products that remain outside the domestic ecosystem but have demonstrated both stability and resilience.
The underlying philosophy is that no fund is perfect for all conditions, which is why decisions to enter, exit, or double down are treated as unemotional, calculated moves grounded in liquidity dynamics. When markets are flush with liquidity, they lean toward growth; when liquidity tightens, value strategies take precedence.
It is this disciplined flexibility that defines their approach, anchored by the belief that family offices are not fund managers but allocators of capital. Their framework is built around governance, tax efficiency, and intergenerational priorities, and it is this structural clarity that separates a sophisticated family office from an ordinary one.
To expand on this, Vivek Goel, co-founder of Tailwind Financial Services adds:
When we evaluate products for family offices, three numbers usually decide the outcome: maximum drawdown tolerance, post-tax IRR, and liquidity impact. A manager may show 18–20% gross returns, but if post-tax yield falls below 12%, or if drawdowns exceed 15% in stressed scenarios, the proposal rarely proceeds. Families in India already have 40–60% locked in illiquid real assets, so incremental allocations must add liquidity balance or diversification, without that, return projections carry little weight.
When it comes to fund managers, the filters are exacting. We look at how much of the manager’s own net worth is committed to the strategy, the track consistency of performance across at least two market cycles, not just a good 3-year CAGR. Operationally, we check if there is a credible second line of decision-making beyond the founder, because key-person risk is a major red flag. Finally, transparency on fee waterfalls, particularly clarity on expense pass-throughs, is non-negotiable. A manager who passes these checks is considered for allocation.
The Takeaway
For a fund manager, winning family office capital in India is about passing a structured filter that prioritises preservation, structural compatibility, and operational credibility over raw return potential.
The qualification process is designed to minimise unforced errors. That is why the portfolios that emerge are intended to perform in the current cycle while preserving purchasing power, managing succession, and maintaining relevance for decades.
The result? Portfolios that are less about “we’ve always done this” and more about “this works now, and will still work in ten years.” It is part science, part art, and part intergenerational negotiation, one that keeps dynastic wealth not just intact, but in motion.
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