Asian family offices and ultra-high-worth individuals are taking advantage of the current downturn to acquire assets selectively, even as they brace for further volatility in the financial markets. 

Business Concept, a Singapore-based single family office and advisory firm established in 1990, is riding out the pandemic storm rather comfortably, having a diversified portfolio of industrial properties and private equity in the food-related sector. One of its ventures is in the business of marketing rare gems, catering to the demand from the super-rich across the world.

Chief executive Cheong Wing Kiat told AsianInvestor he is sitting on cash that will allow him to live at ease for “two years,” while declining to provide details of its assets. He added that this high level of liquidity is necessary to support and expand his food-related companies, which have seen growth during the crisis.

However, Cheong is also on the lookout for distressed opportunities in industries that will offer synergies to his portfolio of assets.

“This virus will be with us for quite some time. One has to choose the right industry in which to invest. If you do nothing, you will run dry. You can’t wait for the rainbow, then you risk being the last one to get in. You have to bet but don’t lose your pants at the same time.”  

Cheong Wing Kiat
Cheong Wing Kiat

Cheong observed that some ultra-wealthy families have stepped up their borrowings in the current low-interest rate environment using their assets as collateral.

“These families are borrowing at a very low-interest rate to invest in public equities, where returns could be in the double-digits [eventually],” he said.

He added the lessons from the 1997 Asian Financial Crisis, the SARS epidemic in 2003 as well as the 2008 Global Financial Crisis, have taught him that cash is king in turbulent times.

“Holding cash means I don’t have to force-sell any assets, and I can continue to look for opportunities,” he said.

While Business Concept has exposure to equities, Cheong did not buy any more shares during the March stock market plunge. “The market remains uncertain, and I think there will be more volatility to come,” he said.

LOWER VALUATIONS

Veteran investor Jim Rogers is also holding a higher than normal level of cash. But unlike Cheong, Rogers has invested in shares in China, Japan, Russia and Hong Kong as he has taken advantage of lower stock valuations following the slide in March.

The price to earnings (PE) ratio of China’s CSI 300 index last registered a multiple of 15.36 on Wednesday (June 17); that compared to Japan’s Topix at 19.11 and the Hang Seng at 10.65. These multiples were much lower in March and they remained comparatively more depressed that the S&P 500’s PE ratio of 21.72, based on Bloomberg data.

“Those markets that I just mentioned are those that are down a lot on any kind of historical basis. That doesn’t mean they’re going to do well. But it does seem to offer more opportunities than other markets,” Rogers said.

With the S&P 500 index trading near record highs after rocket-fuelled recovery during May and early June, Rogers said the index “may well have a blow-off phase”.

The index has had 10 years of consecutive annual gains, but it is facing plenty of headwinds. Rogers, who relocated to Singapore about 13 years ago, expects China-US tension to get worse and predicts a sharp correction in the S&P 500 eventually, possibly after the November US presidential elections.

However, Rogers warned that “he is not a good market timer”.

ARA Asset Management chief executive John Lim’s family office, JL Family Office, is also not letting a good crisis go to waste. The family office and ARA’s property management arm announced in May that they had acquired a 52.08% in crowdfunding platform Minterest for an undisclosed amount.

Established in 2016, Minterest is a Singapore-based fintech company with licences to provide both corporate and personal loans. According to a company statement, ARA likes investing in the real estate credit market, particularly given the “near term volatile market environment” and the fact that debt complements its real assets equity fund management business. ARA Asset Management has S$88 billion (US$63 billion) in gross assets. 

Cheong at BC has similar views that any acquisitions would need to add scale and value to the family office’s group of invested companies.

Asia family offices' focus on alternative investments and selective buying amid a volatile outlook are broadly in line with the market consensus. Diversification remains key, and gold, alternatives and structure products are helpful for downside protection, said Alexander Wolf, head of investment strategy for Asia at JP Morgan Private Bank.

“[We are] still cautious around valuations and second wave risks, but economic data has shown a recovery is underway, so we’ve been cautiously looking to add risk to portfolios,” he said. 

Story updated to clarify name of Business Concept.