Environmental, social and governance (ESG) principles are becoming more widely understood in Asia, and some of the region's family office organisations are helping to drive this development. Hong Kong's RS Group is one.
Unlike most, it embraces both impact- and sustainability-themed investing – two advanced forms of ESG – across its entire portfolio.
Led by Annie Chen, who started RS Group almost 10 years ago, the family office sees itself as a demonstration model for other Asian asset owners who wish to adopt a more impactful approach to its investments.
Prior to setting up RS Group in 2009, Chen was part of a sibling team building up their family office to manage the wealth created by their parents. Prior to that, she had worked as a tax attorney, helping other families create trusts and corporate tax structures. However, over time she began to question “What is the value of what I am doing? What is the purpose of wealth?” Chen told AsianInvestor.
She began with philanthropy, and this evolved into applying her capital (she does not disclose the total assets managed by RS Group) in ways that have a more direct effect. An investment return, while necessary, was not her paramount concern.
“The traditional practice of investing solely for financial gain and putting some of the profits towards ‘good’ causes is no longer sufficient or appropriate to deliver a net positive outcome,” she said.
In other words, private investors need to get more actively involved to improve circumstances for others.
CREATING A PORTFOLIO
When Chen set up RS Group in 2009, the concept of impact investing in Asia was almost non-existent: “When you talked to banks in Hong Kong, there wasn’t the level of conversation required and suitable products were not available.”
Initially, RS Group pulled in advisers from Switzerland and the US to build a global portfolio. Gradually the availability of Asia-focused investments has improved, allowing Chen and her colleagues to demonstrate that Asia-based investors can build sustainable portfolios.
“We hope that we can get [other Asian investors] to be comfortable with and more interested in impact investing, and then get the banks to provide the requisite products, to get the regulators more interested, and build the kind of ecosystem needed for impact investing,” said managing director Ronie Mak, who joined RS Group in 2014.
Mak observed that in Hong Kong, RS Group is “not your everyday family office”, being led by a strong sense of mission and adopting the ‘total portfolio’ approach to managing its investments, grants and programs under its mission of sustainable development.
Members of the in-house team focus on an integrated approach for strategic asset allocation, Mak said. RS Group prioritises consistency across investments and grants, unlike some foundations which separate the two.
The family office’s investment portfolio is broadly divided into three allocations: sustainable and responsible investments (SRI), which includes listed equity and listed debt; targeted impact investments (TI), or private equity; and strategic philanthropy, or supporting Hong Kong and Asia initiatives that target sustainability.
The SRI and TI segments are both expected to contribute to financial returns and positive impact. Mak said, “The risk is probably higher for the TI segment, where the returns can be less stable but the impact is deeper and more tangible, whereas the SRI segment forms the core of the portfolio generating more stable returns, less risky but impact is broader.”
They don’t do a lot of direct deals, only two in fact, mainly due to a lack of team capacity for the high-touch nature of direct deals. An example of the group’s direct deals is a hazelnut farming venture in Bhutan, targeting subsistence farmers in that country.
For the SRI segment, RS Group invests in equity fund managers such as WHEB and Generation who intentionally factors ESG considerations into their stock selections. For fixed income, RS Group invests with LGT and US credit specialist Muzinich. To generate targeted impact, RS Group invests with specialist managers such as Impax, SJF and ResponsAbility.
For listed equities, the group gets involved in negative screening, best in class screening, proxy voting and engagement. On the private equity side, the family office looks to get directly involved in areas like renewable energy, microfinance and funds that focus on underserved communities.
This story was adapted from a feature that originally featured in the December 2018/January 2019 issue of AsianInvestor magazine.