Thai family offices assess liquidity, ESG amid market turmoil
Amid the current turbulence and talk of a downturn in global markets, investors are reassessing elements of their investment decisions such as portfolio liquidity and the influence of ESG-related factors.
At AsianInvestor’s 4th Thailand Investment Briefing last week, these topics were discussed from the perspective of family offices. Other types of asset owners, such as insurers and public pension funds, are subject to pressure to maintain liquidity and document ESG efforts throughout their portfolios, family offices have more leeway to act independently in these areas.
G.P. Group, a Thai single-family office, for instance, is currently more bullish on private market investments than public markets, although liquidity levels are lower and must be considered. Family offices’ liquidity needs are, however, often low, as their goal is to manage portfolios primarily to pass on wealth to future generations.
“Given what’s happening in markets currently, I think putting family money in private is far better because it is more fundamentally driven,” Shiraz Poonevala, director of investment at G.P. Group, told conference attendees. “Today, public markets are driven by sentiment. If you have ‘patient money’, then the right thing is to go into the private market and you’ll get the returns in the long term.”
He explained that G.P. Group’s portfolio includes investments in four Thailand-listed public companies and around 60 private companies in 23 countries.
ALSO READ: Tsangs Group initiative to boost Hong Kong's appeal to family offices
Yet other family offices are not so comfortable with low levels of liquidity in their portfolios, according to Thanavut Pornrojnangkul, chief investment officer at Bangkok Capital Asset Management (BCAM). He said that as a fund manager, his view is that if a family office has an intergenerational portfolio involving a transfer of wealth, investing up 50% of the portfolio in private market assets should be possible.
“But when we approach the clients, the constraint is much lower,” he said. “Even when they say they will not touch the money and it’s for the next generations, they think that 20% in private assets is too much. It becomes a constraint more than anything else.”
RETURNS AND REGULATORY ARBITRAGE
While G.P. Group is open to low liquidity, Poonevala is concerned about whether ESG can be implemented on portfolio companies without forfeiting some returns. He said that ESG impacts depended heavily on the universal enforcement of regulations.
“You’re always a part of the market, and if you’re following and complying with any regulation, it does come at a cost if your competitors aren’t,” he said. “Then you have a problem, because you become either not cost-competitive or you make less than competitors.”
Poonevala said that particularly during periods of weakening market sentiment and performance such as the current one, ESG-conscious companies tended to lose out compared to competitors that took a more purely returns-oriented approach to investing
He offered the example of G.P. Group’s ownership of a large manufacturing facility on Thailand’s eastern seaboard that complied with certain regulations that foreign competitors could avoid.
“The kind of regulation we have to follow, compared to our peers, is totally different,” he said. “You have to dig deep to really follow, and therefore you need some consistency in enforcement and regulation of ESG to make sure everyone follows it. It has to be an even playground for all, otherwise it comes at some costs.”
NEW GENERATION, NEW THINKING
He said that although G.P. Group had always been very mindful of issues that are now categorised as ESG, such considerations were “not the key driver of an investment decision”.
Nevertheless, BCAM’s Pornrojnangkul said that amid a major generational transfer of wealth by family offices in the US and Asia, prevailing attitudes were changing. He said demand that ESG factors be taken into account was coming from a new generation of already affluent asset owners who cared about the environment and the world they live in.
“If you look for the ESG demand side, being the investor who’s going to drive the fund manager to do more ESG, my observation is that when you have no money, all you care about is how you make more money and not so much else,” Pornrojnangkul said. “Once people have wealth, factors like social and environment concerns become important.”
ALSO READ: Singapore family office flood could ebb in Hong Kong’s favour
He said empirical evidence had shown that ESG implementation clearly doesn’t deter investment, leading investors to demand it from fund managers because they see it doesn’t hurt returns. He said environmental considerations, in particular, were considered a way to add value to portfolios if positioned properly.
“If you focus on the right areas, the general evidence shows that ESG clearly does not detract [from] returns – especially environment and climate,” Pornrojnangkul said. “When you look at energy transformation, there’s a lot of growth potential because the demand will be there.”