APAC family offices bet big on property, AI and blockchain
Asia-Pacific (APAC) family offices have proven remarkably resilient amid fluctuating market conditions as revealed in the Asia-Pacific Family Office Report 2023, published by Raffles Family Office and Campden Wealth.
When examining the performance of portfolios in relation to actual movements in financial markets, APAC family offices fared better than might reasonably be expected.
Campden Wealth
The report reveals that 58% of APAC family offices reported an increase in assets under management, with a significant 32% seeing growth exceeding 10% with many APAC family offices proactively adjusting portfolios to counter the impact of inflation and rising rates, according to Adam Ratner, director of research at Campden Wealth.
“Noteworthy measures include shortening the duration of fixed income bond portfolios (27%), reducing borrowing (27%), and increasing exposure to equities (25%). These strategic moves aim to navigate market dynamics and safeguard portfolio value against higher rates,” Ratner told AsianInvestor.
Family offices in APAC are leaning towards real estate, with 39% set on increasing their investments in the sector, demonstrating a strong favouritism for property even as they actively pursue new technologies like AI and blockchain. This trend also reveals a balanced investment approach, mixing the reliability of traditional assets with the promise of digital advancements.
“Today the wealth of successful entrepreneurs is often founded on technology. However, for more established families from the 1970’s and 1980’s, the historical foundation of family wealth was property. Therefore, it’s not surprising that many family offices are investing more in the property sector amid uncertain financial markets,” said Ratner.
FAVOURING REAL ESTATE
Real estate remains a sound investment option for several compelling reasons according to Dr. Joe Kwan, managing partner, real estate at Raffles Family Office.
“First and foremost, as historical data indicates, real estate remains an effective longer term inflation hedge. This is especially relevant in a global environment fatigued by prolonged high inflation,” Kwan told AsianInvestor.
Raffles Family Office
While real estate incomes are unlikely to fully mitigate the pace and intensity of recent inflation surges, corresponding growth of rental income provides a powerful mitigating impact. In turn, higher rental income and active management of real estate portfolios will enhance capital values, he said.
“Secondly, although a high interest environment is not conducive to real estate valuations, problems are only likely to emerge when the use of debt has been excessive. High holding costs will pressurize these investors into heading for the exit, causing yields to rise and real estate valuations to slide. But for others this will present an opportunity,” said Kwan.
The current real estate pricing correction—even in core APAC markets where fundamental remains strong—is looking extremely interesting and is fast developing into an exceptional vintage year.
“This is even more significant for private wealth and family offices that are not highly indebted, can operate with long holding periods, and have a preference for iconic assets. There will be strong buying opportunities in this down cycle,” he said.
PROPERTY MARKETS
Within the context of APAC markets, Raffles Family Office is focused on the core Asia-Pacific markets as risk adjusted returns look very attractive for 2024.
Singapore benefits from its perception of safety and will continue to draw investment capital.
“The relatively small investible segment of the commercial market should see strong valuation growth, driven by a flood of capital, once interest rates start their downward adjustment,” said Kwan.
Australia shares similar attributes, with Sydney and Melbourne identified as gateway cities for offshore capital due to transparency and the rule of law.
“There will be growing demand for residential units and there may be attractive opportunities in office repurposing,” said Kwan.
“Japan and Korea continue to show strong potential within their residential rental sectors as the younger generation continue to shy away from home ownership. This drives the long leasehold segment; the best operators in this space will be rewarded,” he said.
Meanwhile Hong Kong, despite all the recent issues, remains a key gateway city to Asia.
“The larger-than-normal decline in valuations is revealing substantial opportunities notably in the hospitality sector,” said Kwan.
TECH UPTICK
Family offices in APAC are currently navigating the early stages of a significant wave of AI investments, with a particular focus on Artificial General Intelligence (AGI), according to Campden Wealth’s Ratner
“A key distinction is emerging between AI-enabled and AI-infrastructure investments. Notably, family offices are carefully considering the evolving dynamics in this field and exploring potential applications of AI within their investment strategies,” said Ratner.
Further research is essential to gain a comprehensive understanding of how family offices plan to engage with AI technologies and the specific applications or use cases they are targeting in this rapidly evolving landscape, he said.
In terms of blockchain technologies, the report found that 45% of APAC family offices believe they will create substantial value.