James Chen isn’t your typical Asian family office CIO. He’s the third generation member of a family manufacturing business operating from a base in Nigeria that was founded 60 years ago.
“Chinese families go where the opportunities lie and our core business, which is enamelware, pots and pans, has been the family’s bread and butter for 90 years,” he told AsianInvestor, when asked about the unusual location.
In total, the family has three different manufacturing businesses, employing over 2,000 people. It’s still family run, with Chen’s uncle and cousin overseeing the operation.
Chen’s day job is running the family office and tracking the family’s investment portfolio (he did not respond to queries on its exact size). Plus he works on a variety of philanthropic projects, most of which have a dual mandate, for a financial and a social return.
“I’ve found this to be the most interesting space to be working in now. When you are running portfolios in the market, it is about relative returns, whereas in the direct investment area it’s more about trying to create value.”
The family investment portfolio is essentially a fund of funds-type operation with a very long term horizon.
“Probably the biggest difference is that we are not so concerned about year to year performance,” Chen said. “We have the opportunity to think differently. That gives us a lot of flexibility. I don’t know what the ultimate return profile will be and it a great opportunity for us to take positions that others would not be able to do.”
Having said that, Chen adds, “right now we are super-conservative,” owing to a rather pessimistic view of the markets in the foreseeable future. Added to which “we are in probably one of the toughest operating environments [for the business] in the last 50 years. Most of our competitors have gone out of business and we’ve radically cut back.”
CAREFUL INVESTING
This conservativism is reflected in the family’s asset allocation, which shuns bonds completely owing to falling yields and has fully 30% invested in gold.
“We are very much into the gold space,” said Chen. “We invest in the both the physical gold and gold equities. We put a lot of effort into understanding and working around that. So that’s quite niche, but otherwise a lot of the managers we use would be quite well known.
“I have a very grim view of what’s going to happen in the world. I hope I’m wrong but I don’t want to be unprepared.”
The equity portfolio, which constitutes about 70% of the family office’s overall assets, is heavily tilted towards emerging markets and private equity venture investments. In the private equity segment, the family has invested in a lot of secondary ventures.
“There was a point in time where we found those investments very attractive, but now there is too much money in that space,” Chen noted. He has already stopped investing in private equity, though. “We are just running off the portfolio now. We don’t feel we are properly being compensated for the risk we are taking in the market now.”
Instead, he’s begun looking for more niche opportunities. “We tend to look for special situations rather than the big brand name funds; niche things like forestry, or mining, rather than these big buyout type funds. We have a done a number of start-up situations too.”
This story was adapted from an interview taken from the Spring 2019 edition of AsianInvestor magazine.
