As family offices in Asia look to develop their philanthropic and impact investing activities, it is important for them to gain specific sector experience as part of the process rather than rely on projects sourced by others.
That's the advice from the head of one Singapore-based single family office, who sees his family portfolio moving significantly into new investments across the region.
“With a family office, the mandate is not always just to preserve the money for future generations. It is using that to bring the family closer together," Tuck Meng Yee, senior partner at JRT Partners, told AsianInvestor. "So whether it’s an investment that promotes discussion across different generations, or something that allows for education of the next generation, those are things that show how a family office can be different from a traditional investment institution.”
Adeline Tan, head of advisory at Mercer in Hong Kong, said she was seeing more families getting involved in impact investing because all family members could comment on and contribute towards the final goal.
"The common goal is well understood and investment expertise is not the only driver for decisions,” she told AsianInvestor.
The so-called triple bottom line, a method of assessment that cuts across social and environmental performance as well as financial returns, is increasingly important for families, Yee said.
“Sometimes we will look at an investment and it may not move the dial in terms of its potential return, but because it’s a new industry or sector that allows us to get some experience of an area we’d like to get into, that becomes part of the bottom line. You are doing good but you can also have selfish reasons, like getting yourself trained."
BEST SOURCED DIRECTLY
The lack of suitable impact investing opportunities for Asian families was lamented by speakers at AsianInvestor’s Asian Investment Summit earlier this month.
Yee’s view is that Asia’s market is still developing, so local impact investing opportunities are perhaps best sourced directly.
“The reality is that the investment managers that cater to Asian institutions are predominantly, from a wealth management perspective, not Asian. So when they are product sourcing, they want global appeal, developing themes that will appeal to the bulk of their investors.”
For that reason, JRT dismisses a lot of opportunities presented by US and European institutions. He cites one large US manager that was offering itself as an impact-orientated fund. “But its mandate was really mostly North American and we thought its scope was a bit too broad. Trying to differentiate it from a normal private equity fund was difficult, so we felt it was a bit too much of a labelling exercise rather than a true impact investment.”
That lack of focus on real impact is also true for some opportunities sourced in Asia. “This is a growing region and that means the lowest hanging fruit for investment is often just general investments without a specific impact,” Yee said.
The impact JRT is looking to make is mainly centred on Southeast Asia and the Indian sub-continent. It focuses on areas like child labour, healthcare, education and the environment, skirting around some of the more politically charged issues.
An example of this would be Myanmar, which Yee said JRT would be a lot more comfortable investing in than some of its peers in Europe or the US, who are put off by the idea of investing in a country with a strong military presence and perceived to be persecuting minorities, not least the Rohingya.
“We are aware of that – it’s just a case of how do you help the people of Myanmar in a way that doesn’t promulgate the actions of the military. So we are looking for people who don’t have those kind of government associations. They are typically private sector or NGOs and preferably local people, or locals working with foreign partners,” Yee said.
“And you do much smaller projects because then you are less likely to have some sort of government entity coming in and trying to take a piece of the action. You work with them there from the grassroots,” he said.
This way of operating is similar to the way things are done in other parts of the region, he added. “In India, for instance, you look at where you want to make a positive impact in a very localised way, as opposed to trying to scale it nationwide. Typically, we want to work with grassroots people in a particular sector.”
The need to invest smaller amounts to bypass official interference works well for families who are often reluctant to commit to large impact investments. As such, Yee said any can do their own impact investment.
“You could start your own social enterprise. In Singapore for example, you have start-ups that are social enterprises managing maybe $3 million, so a family can get in with maybe $25,000. On the other end of the scale, you could develop a green resource in Thailand or Indonesia or the Philippines and that could be anywhere from $3 million to $30 million."
JRT’s overall portfolio allocations currently have approximately 30% in public markets investments, about 20% in hedge funds and 25% each in private equity and direct real estate. The impact part is still less than 10% of the overall portfolio because JRT are relatively recent adopters. “And it really came out as a way to broaden discussions amongst the family members. It started as an interesting way to invest rather than a way to maximise returns," Yee said.
“This is how impact investing is different -- in assessing an impact project, we can look at how technology is used to minimise costs and allow [the desired] impact to made quicker than in the past. So as an investor you get involved in some interesting and, at worst, educational projects; at best we might actually make some money as well.”
JRT's initiative to bring the different generations into the discussion is a way to deal with a perceived lack of broad investment and management experience among families, a problem highlighted by family office practitioners.
From his perspective, Yee said there are few touch points with the traditional investment industry. "Impact investing is not well understood; it’s even less well understood than venture capital overall, so the competence and experience is not there."