Asian family offices continue to diversify into private markets in 2023
While Asia’s wealthy are sitting on a healthy pipeline of cash flow going into 2023, those diversifying into private assets are displaying different risk appetites for emerging technologies and cryptocurrency.
“They have a pretty good line of sight on cash flow from their operating businesses in terms of how much they can take out in the form of distribution, so they're all set on that. What they want is a diversification largely into the United States and Europe on the private market side,” said Nadav Lehavy, director at HP Wealth Management.
“That's not to say that if opportunity looks interesting here in the region that we won't pursue that, however, by and large they come to us seeking global diversification, also on the public market side, actually,” Lehavy told AsianInvestor’s recent Southeast Asia Institutional Investment Forum.
He said the wealth management firm was looking at a range of sectors including cybersecurity, agriculture technology and digital healthcare, with a bias towards life science and biotech.
The firm also has an opportunistic strategy for next-generation retail, and other interesting deals in the secondary market.
Lehavy noted that their clients in the region - ultra-high-net-worth individuals and families - were “pretty happy” with the sector tilt.
That said, their biggest shift in 2022 had been to underweight public assets and increase cash positions. In the second quarter of 2022, some of their clients held as much as 30% in cash, which then decreased gradually as market risk came down.
Kwan Chi-man, group chief executive officer and co-founder at Raffles Family Office, agreed with Lehavy, noting that although at one point they were holding 50% in cash, diversification into the private market, particularly private equity, was still the trend going forward.
ALSO READ: Family office sees market upheaval as investment sweet spot
Raffles' recent report showed that Asia-Pacific family offices allocated an average of 23% of their assets under management into private equity, especially for the next generation who were taking over family fortunes. They private equity at the top of their list, Kwan noted.
“With a lot of platforms nowadays, the private market can be liquid. It can be chopped into very small pieces and ticket sizes, so I think a lot of this is creating a lot of liquidity and secondary market buy-and-sell transaction in the market,” Kwan said.
He said the new generation of wealthy families in Asia viewed risk quite differently to traditional family offices which saw private assets as essentially volatile and illiquid.
“They've said that's fine. We will diversify into 100 private markets and that's how we diversify risk,” he said.
NOT FOR EVERYONE
With such risk appetite, he said digital assets, including cryptocurrency and blockchain technology, were within their radar.
“A lot of them, yes, they're looking at it as an investment asset class, but ultimately it's really all about the underlying technology and how they integrate that into their business,” Kwan said.
For example, he said, one of their clients - whose family business was involved in medical services - recently invested in a telemedicine company in Southeast Asia as one of the lead investors, with the purpose of both investment return as well as applying the technology into their own business model.
But both Kwan and HP Wealth Management’s Lehavy agreed that risk appetite for the private market, including digital assets, depended very much on which generation of the family they were serving.
For HP Wealth Management, Lehavy noted that both the investment team and the clients they serve were somewhat “long in the tooth”, so the type of digital assets Kwan’s clients may be interested in were not anything that they would look at from a portfolio management perspective.
“From the start, intellectually, we took the time to learn about it and understand what could the possible use cases could be ... and we didn't find any,” said Lehavy.
One of the reasons is that cryptocurrency, for example, can’t be properly valued using traditional metrics.
“From a strategic asset allocation perspective, we did not feel that it merited any investment,” he added.