Asia family offices warm to private markets, turn cautious on China
From evolving real estate investment patterns to a cautious approach towards China, Asian family offices are employing dynamic financial tactics to stay ahead in the current global economic climate, a recent survey showed.
While Asian family offices maintain significantly higher allocation to real assets, particularly real estate, compared to their global counterparts, a shift is occuring, according to the KKR 2023 Family Capital Survey.
KKR
“In the past many Asian family offices have concentrated more of their net worth in real estate than other public and private investments. However, we think this tendency is changing as financial markets in Asia mature,” Henry McVey, partner, head of global macro, balance sheet & risk, and CIO of KKR’s Balance Sheet, told AsianInvestor.
Real estate allocations in Asia account for 21% of overall assets under management (AUM), which is notably higher than the 11-12% seen in other regions, accordng to the survey.
Now, many CIOs that oversee family offices in Asia are becoming more comfortable with private market investments, including private equity and private debt, he said.
“The recent substantial increase in global interest rates — which we believe will remain higher for longer this cycle — is also an important factor in re-evaluating both personal and commercial real estate holdings,” said McVey.
PRIVATE CREDIT GROWS, INFRA LAGS
There is growing interest in private credit in Asia, with family office CIOs considering it an attractive asset class in light of the dislocation created by the retreat of traditional banks and the rise in capital charges, according to McVey.
“Our work suggests that private credit as an investment asset class is maturing in the region, and as a result, many global investors are pursuing private credit opportunities in Asia to find what they believe are better pricing and terms — and often less competition from established players,” he said.
While there has been a global increase in interest in infrastructure over the last year, Asian family offices have historically allocated less than 1% of their AUM to infrastructure, one of the lowest among the regions surveyed.
McVey, however, believes the intention to increase allocations to infrastructure as an asset class is a long-term trend, given the return profile, inflation protection, and diversification benefits.
“Infrastructure has also emerged as a compelling way to invest behind powerful themes such as data intensity, logistics, and renewables,” he said.
“In our opinion, the long-term investing horizon of infrastructure, coupled with the compounding nature of the asset class, certainly aligns well with family office objectives. “
CHINA CAUTION
KKR’s survey also found a notable shift in asset allocation within Asia away from China/Hong Kong toward markets like India and Japan, with direct China exposure expected to drop to 2-5% from the previous 9-11%.
Most CIOs have exposure to China through existing fund investments, which have 5-7 year horizons, said McVey.
“They are keeping these investments but pausing new investments as geopolitical tensions and uncertainty have increased,” he said.
At the same time, CIOs are largely reducing exposure to Chinese public equities.
“Overall, though, CIOs are not abandoning China, and in aggregate, many family offices remain bullish on the investing opportunities in Asia.”