Greenvissage explains, Why do billionaires have family offices?

Bill Gates is one of the largest private farmland owners in the United States. Yes, Bill Gates, the co-founder of Microsoft, owns almost 3 lakh acres of farmland and nearly all of this was purchased after 2010. In the context of land acquisitions, we would call it relatively recent. Now, being a business magnate, Bill Gates surely has investments in stocks, bonds, startups, and similar assets. However, he also owns a lot of alternative assets like hotels and, yes, farmland. When Microsoft was listed on exchanges in 1986, Bill Gates owned almost 50 per cent of the company. However, today his ownership is slightly above 1 per cent. And that is completely by choice – not Bill Gates’ choice, but Michael Larson’s choice. Who is Michael Larson? Michael Larson is head of  Cascade ventures, the family office of Bill Gates. Now, you might have heard many times how billionaires are setting up their family offices somewhere. There are quite a few popular family offices in India — Deepika Padukone’s KA Enterprises, Narayan Murthy’s Catamaran Ventures, Azim Premji’s Premji Invest, and the Mariwala family’s Sharp Ventures. This trend of having family offices is catching on these days – with Mukesh Ambani being the latest in news. Now, these people are so filthy rich that it is tough for them to manage their family money. And not just money, even running their day-to-day family expenses becomes tough. And that’s why they set up family offices. Of course, the family office gets paid handsomely. However, the annual expense of running a billionaire family itself can run into a few hundred crores, so spending a few crores over consultation is quite reasonable.

We often invest in a mutual fund, so that the fund manager invests and manages the stocks or fixed-income securities, for us. Similarly, family offices are entrusted with managing practically everything. They constantly keep analysing and providing consultation to their billionaire client and also execute the same once they get a nod from their client. They invest money in stocks, IPOs, bonds, deposits, etc. the easier part of their job. And then, they also invest money in real estate properties, hotels, office spaces, warehouses, etc. These family offices also take care of alternate investments such as startups and venture funding, if the owner of the money wishes to. They build a complete portfolio of investments with all the necessary diversification, without worrying the owner with research, analysis, documentation or legal formalities. However, investing is not the only thing they take care of. Taxes go hand in hand with wealth management. How much tax is to be paid, when is it to be paid, how can the person save on taxes – all these are taken care of by the family office. They also manage the insurance of the owners and their assets.

Family offices are more like the head of the family making decisions, and not just a fund manager. While some families limit their scope to certain aspects such as finance and wealth management, while others go much beyond. For example, some family offices are tasked with teaching the next generation of the family about investing and finances. They also draw up plans for what happens when a person dies naturally or unexpectedly. Family offices also allocate money and define limits for lifestyle use — sports cars, watches, boats, etc. These offices also look after all the spending — ensuring the cars are serviced, the hotels are booked during travel, etc.

Greenvissage Explains, How did Decathlon overtake other sports brands in India?

In 2015, Nike and Adidas were struggling to create a market in India since India had no major sporting culture. However, just a few years later, a newcomer arrived and snatched away their market in a small period of three years – Decathlon. Decathlon is today the number one sports brand in India. The company sources majorly from India which helps it to minimize the global supply challenges. It even embodies ‘Born in France, Made in India’ in its philosophy. Currently, more than 60 per cent of sales in India are ‘Made in India’. However, the sporting culture is the major reason behind the brand’s success. Customers not just shop at their store but experience the entire celebration of sports. The company has cracked the formula that others have failed to.

Here are some of the key things that decathlon stores do – 1) The company has stores all across the country where customers can try out different things without being interrupted by the staff. 2) Its stores also have different game courts on its premises which carry out tournaments throughout the year, which attracts the young crowd and builds a customer base. 3) Despite products at affordable prices, Decathlon gives out hefty discounts at check-out. 4) Like Ikea, most Decathlon stores are built like warehouses, designed in such a way that you tend to touch every product before exiting. 5) The stores also do not look luxurious and that is intentional. This is done to ensure the look and feel of the store is rugged and appears sporty. 6) The stores are always big in size and spacious with countless options to choose from. It’s hard to walk out without buying anything. 7) The people on the staff are not ordinary salespersons but are selected through a series of interview rounds. They look for people who are alert, agile, efficient, fit to play a sport and have a passion for sports. This ultimately enhances the customer experience when someone with zero knowledge of a sport enters the store and the staff can fully assist and cater to their requirements. 8) However, the customers do not need to depend on the staff assistance, because products are well categorized and tagged with details.

Greenvissage Explains, How is Air India disrupting the aviation sector?

Air India, an Indian Airline, has placed an order for aircraft and this announcement is being made by Joe Biden, the President of the United States, along with Indian and French counterparts. Well, it’s a record-breaking order for sure, however, the same is also going to employ one million Americans and therefore, the agreement is a win-win not just for the companies involved but also for the three economies and their people. For Air India, it is the right time to capitalize as other airlines are either debt-ridden, cash trapped, or simply shutting down. Most of Air India’s aircraft are old and therefore, were due for replacement. The per-unit cost of customers is likely to go down as the company consolidates all its airline brands.

Indigo is currently the leading aviation industry operating 55 per cent of the total fleets in India. It has no equal competition today, however, after the takeover of Air India by the Tata Group (where it belonged originally), the throne is once again up for grabs. The Tata Group has already announced plans to integrate its brands of airlines – Air India, Vistara and Air Asia – a consolidation that will make it the second-largest airline in India. And now, it is also adding 470 new aircraft carriers to it. So, Tata Group which is currently operating 220 aircraft, about 34 per cent of the total market, will further strengthen its base with new carriers and even surpass Indigo. Of the total, 220 aircraft will be from US-based Boeing and 250 aircraft from France-based Airbus.

For the Indian economy, Indian air traffic is expected to grow at the compounded growth rate of 7 per cent every year for the next two decades, making India the third-largest aviation market in the world. This will increase direct, indirect and induced employment, as more personnel will be required to operate and maintain the aircraft, service providers would be needed for navigation and fuel suppliers, call centres, lawyers, etc. will also be required. Now, the existing infrastructure will not be able to support the deployment of more than 450 aircraft. So, Government will escalate its infrastructure expansion which in turn will again create more jobs. Meanwhile, customers can also expect the prices of air tickets to go down as a result of the competition. This increase in air travel would also take some load off the existing transportation systems i.e. rail and road. This will also boost tourism within the country.

Greenvissage Explains, Why does Maharashtra get such a low share of the Union Budget?

Governments’ receipts include direct tax, indirect taxes and borrowings. Direct tax contributes approximately 30 per cent to the total receipts of the Government that the Central Government directly collects itself. Indirect taxes are collected by the state governments and returned to the Central Government. The Central Government distributes the tax collected to the State Government for running the state and its projects. However, out of every INR 100 that the states collect indirectly, Maharashtra gets back only INR 7 while Uttar Pradesh gets back INR 333, and Bihar gets INR 922. So, why does Maharashtra get such a low share from the Central Government’s receipts? Well, there is a set formula by which the distribution is decided which is known as the Finance Commission, currently, the Fifteenth Finance Commission. The formula takes into account several factors. Some of the key factors are as follows:

  1. Income distance – How far is the state’s per capita income from the state with the highest per capita income? This redistributes collections from richer states to relatively poorer states and helps in developing them.
  2. Area – Larger the state, the higher would be its needs to spend on building and maintaining infrastructure like roads, airports, highways, and civic services.
  3. Population – The allocation will be used to spend on education, healthcare, sanitation, and housing. Therefore, the states with higher populations would have higher allocations.
  4. Demographic performance – While population carries weight in the formula, it should not be an incentive for states to grow their population unsustainably. So demographic performance is based on progress in population control. This is a recent addition to the formula.
  5. Forest cover – States which maintain their forest cover are giving up some of their economic potential for conserving the environment. This is to compensate and incentivise nature conservation.
  6. Tax effort – This is an incentive for states which have higher tax collection efficiency. It is the ratio of the average per capita own tax revenue and the average per capita state GDP. However, it has the lowest weightage (2.5%).

Therefore, even though Maharashtra does relatively better on most parameters, the highest weight goes to income distance, which favours states with lower per capita income. That is why Bihar gets 10.06% of the tax devolution as compared to Maharashtra’s 6.14%.