Asian family offices expand into alternatives
Asia’s wealthy are favouring private assets, or alternatives, as volatility in the economic outlook shakes up public markets worldwide.
“The last few years have taught us that there is a lot of correlation between markets. War in Eastern Europe can make markets volatile in the US or Hong Kong. This is why many of our clients want to diversify beyond the public markets that they entrusted more holistically – and that has led them to private markets,” Chi Man Kwan, chairman and chief executive officer at Raffles Family Office (RFO), told AsianInvestor.
According to wealth and asset manager Lombard Odier’s 2022 APAC HNWIs Study, Asia Pacific (Apac) high net worth individuals (HNWIs) are repositioning their portfolios, diverting more from traditional asset classes such as equities and bonds. The study showed an increase of 37% over the past two years of investing in alternative and private equity assets.
“Private assets clearly bring diversification and more efficient and optimal risk-adjusted return to our clients. It is a newer source of return where the space has been developing a lot, especially in Asia, where private equity has not necessarily been extremely popular until recently,” Jean-François Aboulker, head of ultra high net worth individual (UHNWI) offering in Asia at Lombard Odier, told the press at a briefing when the study was released September 7.
A MATTER OF SURVIVAL
At Raffles Family Office, the rise in demand for private assets led the multifamily office to build a dedicated department for private asset investments. The latest addition to the arm, which also includes private equity and structured investment solutions, is the recent hire of Joe Kwan as head of real estate.
Chi Man Kwan described the next decade, in which $17 trillion of wealth in or around Greater China will be passing on to the next generation, as “ground-shaking”. The owners of this wealth will change, and so will their needs and demands. This demographic is younger, more likely to be educated overseas, and harbouring different priorities than the older generation.
It follows that multifamily offices need to expand their services. Kwan estimates that 20-30% of the money that Raffles Family Office is managing is in non-traditional banking products, such as private equity and real estate. He added that the number will definitely increase, for instance for real estate and digital assets such as stablecoins.
“We focus on clients in the $50-500 million segment, who often work against longer investment horizons. So for us, it’s not a question about whether we want to do private, real estate or even digital asset investments; it’s a matter of survival. Because five years from now, the 10-15% of clients that demand access to these assets will turn in to 50-70%," Kwan said, adding:
"And if you don’t give them what they want, they will simply shop elsewhere. Private wealth managers need to offer more than public assets. To do that, they need to have the scale, the expertise, and most importantly the vision to anticipate future client needs."
As Lombard Odier’s study shows, interest in private assets is on the rise with Singapore and Australia leading the trend. Sixty percent of Singapore HNWIs and 57% of Australia HNWIs intend to increase their allocation.
“If you look at more sophisticated private equity and private debt access, we can see that Singapore and Australia are more advanced because they have access to these investment opportunities which are much more difficult in emerging markets in Thailand, Indonesia and Philippines,” Vincent Magnenat, limited partner, global head of strategic alliances and Asia regional head at Lombard Odier, said at the press briefing.
“It is about creating the access because there are always the same underlying fundamentals for private equity investments. It will take years to reach the targeted allocation, and we expect this to be a long-term developing trend,” Magnenat added.
Looking at the demographic of these new UNHWI asset owners, Kwan pointed out that they ultimately want a lot of transparency and control. He cited Raffles Family Office as investing directly into private equity companies instead of funds. And when they do, they prefer to be very involved in the investment and its development.
Take the case of a Singapore biotech company that Raffles Family Office invested in on behalf of a family office client based in Thailand: Part of that client’s family business is also in biotech, so that family was able to help the Singaporean company to expand into the Thai market.
“These private market investors, who are typically second-generation principals, are often not only looking to make a return; they are also looking to actively take part in the expansion of the companies they invest in. That is a very different, hands-on approach that you would never see in the investment vehicles available to them through the banks. This involvement opportunity is a key part of the attraction of private market and other alternative investments for our clients,” Kwan said.
He pointed out that clients prefer doing direct private equity investments, which means full transparency and allows client access to the full data room. This way, the clients can also request to meet the senior management of the companies.
THE YOUNG AND THE DIGITAL
In the Lombard Odier study, the enthusiasm for private assets is reflected in the low liquidity concerns of HNWIs.
“By intuition, private assets should not cater to the needs of the older generation because you miss the liquidity factor. Usually, private equity investments take 10-12 years, private debt is 8-10 years, real estate could be shorter, but they are all still relatively long-term investment commitments. What the study shows is that the younger generations need some liquidity, because they believe that they have opportunities with liquidity,” Magnenat said.
Younger generations desire more liquidity relative to the older generations, most probably because they want the flexibility to seize opportunities, and they tend to be more proficient in new technology platforms and possibly more reactive as investors, as also pointed out by Kwan.
“Younger generations will look more at digital assets than the older generations. Digital assets are supposed to be extremely liquid. This is where more established investors will look to, for instance, private debt, and prefer the annual income from that investment. We see a difference in the need of liquidity between the younger and older generations,” Magnenat said.