The 'Missing Billionaires' theory: Why compounding, not wealth preservation, creates generational fortunes

For decades, family offices have focused on protecting wealth through diversified portfolios, fixed income and conservative investing. But according to Anirudh A. Damani, Director, Artha Group, that approach may be preserving capital without necessarily creating generational wealth.

Damani argues that the real objective of a family office should not be to merely beat inflation or match market benchmarks but to generate sustained double-digit returns that compound over several decades. He calls this the "Missing Billionaires" theory—a concept that questions why there are relatively few multi-generational billionaire families despite decades of economic growth and capital market expansion.

"The biggest mistake investors make is confusing wealth preservation with wealth creation," Damani said. "Protecting capital matters. But a portfolio that only keeps pace with inflation, taxes or a benchmark isn't building generational wealth. It's standing still."

According to him, family offices differ fundamentally from institutional investors such as pension funds.

"Family offices are not pension funds. A pension fund solves for liabilities that come due this year and next. A family office thinks in 25-, 50- and 100-year cycles. We don't manage a portfolio. We manage a legacy across generations," he said.

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The power of compounding

Damani says the mathematics of long-term compounding explains why return expectations matter more than many investors realise.

"Compound just over 7% a year for 100 years and ₹1 becomes roughly ₹1,300. Year to year, that sounds modest. But 1,300x over a century is staggering," he said.

Yet despite this extraordinary potential, he believes very few families sustain wealth across multiple generations.

"There should be thousands of billionaire, even trillionaire, dynasties by now. There aren't. Families rarely lose wealth in a crash. They lose it by quietly mispricing risk year after year, over decades," Damani said.

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Pricing risk correctly

Rather than chasing headline returns, Damani believes investors should price risk appropriately across different asset classes.

Government securities, he says, deserve the lowest return expectations because they carry the least risk, while venture capital should deliver substantially higher returns to compensate for illiquidity and execution risk.

"My rule of thumb is simple. A venture portfolio should clear about three times the small-cap benchmark. Indian small caps have compounded at around 15-16% over the last decade. So venture ought to return 45% or more," he said.

He argues that many investors have become comfortable with venture capital generating internal rates of return (IRRs) of around 24%, which, in his view, fails to adequately compensate for the additional risks compared with public equities.

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Realised returns matter

Damani also cautions investors against relying on paper valuations when assessing performance.

"This isn't theory for us. Across 38 exits, we have realised returns to back it up. OYO returned us over 150x and Exotel returned 114x. But for every winner, we've also exited companies at 1x, 3x and 5x," he said.

Sometimes, he added, exiting underperforming investments is itself part of disciplined capital allocation.

"Liquidity matters more than a markup on a spreadsheet. We measure ourselves on the money we return to our balance sheet, not on paper valuations," Damani said.

For family offices, the lesson is clear: preserving wealth may protect today's assets, but long-term compounding driven by disciplined risk pricing is what ultimately creates enduring, multi-generational fortunes.

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