Family offices fret over balancing tech against tradition
Big data and technology aren’t just attracting the attention of a variety of corporate players. A new generation of wealthy Asian family members also view the technology as a means to steer their family portfolios in new directions.
Some family patriarchs are sophisticated enough to recognise that technology advancements can complement their existing businesses, and potentially help them invest their wealth better as well.
“They are now focused on direct investment opportunities, as they see better prospects in other businesses and real estate,” said Shirley Crystal Chua, founder and chief executive of Singapore-based multi-family office Golden Equator.
“For example, a real estate family that owns numerous hotels will be more inclined to invest in PropTech (technology applications typically in real estate) that can be used in their hotels,” Chua said.
While some patriarchs are tech savvy, their children and grandchildren are taking this engagement to a whole new level. “Millennials are more engaged when it comes to new investment themes such as blockchain/bitcoin, robotics, impact investing and sustainable investments in line with ESG (environmental, social and governance) criteria,” Chua said.
But family office advisers warn that tech investing should not be seen as an end to itself. A mixture of waning family office investment support and inadequate business and investment skills among second- and third-generation members of wealthy families are set to pose challenges to how they manage their money. And tech will not be able to solve all of these issues.
NEW TECH INVESTORS
A good example of this new generation of tech-savvy family investors is Timothy Tsui, whose Hong Kong-based multi-family office Arbutus Capital Partners is actively developing a portfolio of unicorn investments and new applications in fintech and other developing industries.
His focus in recent years has switched from real estate to private equity investing in technology, specifically fintech and healthcare tech. He and a group of tech-minded partners have developed a crypto currency OTC arbitrage engine, built to order for a wealthy Hong Kong client. They are also working on another fintech application for banking and finance, that Tsui said is not blockchain related, which will launch later this year.
In the medtech area, he is working with a Swiss company (in which the Singapore government is also an investor) in a new app for blood pressure and stress level testing.
Depending on the industry, Tsui said technology can be a large disrupter to traditional businesses, “especially those doing brokerage or middleman activities, which are ripe for technology to add significant productivity and to displace those traditional brokers. That’s why I want to invest in strong technology and strong software because these type of companies can increase efficiency to all parties”.
One challenge for tech-focused investors like Tsui, who invest at the forefront of new technologies (he is also a keen follower of Tesla and SpaceX), is finding fund managers or general partners who can match his contacts and vision.
He noted that traditional asset management companies are increasingly seeking out opportunities in technology and alternatives, despite lacking much experience in these areas.
“Their bread and butter business in public markets, bonds, equities or real estate is no longer as lucrative or as easy as it was before. So they branch out, but when I talk to them, they show themselves to have no in-depth knowledge of these new markets.”
That serves as a warning to family office investors making their first forays into private equity and venture capital. Tsui said, “Do you want to be investing with those asset managers, however large, who don’t know what they’re doing and are just doing this for the first time?”
EXPERIENCE REQUIRED
Tsui is a bit an exception in the family office space, boasting both an understanding of technology and the skills to invest in more traditional areas.
Many family offices are not so fortunate. Singapore-based family office veteran Cheong Wing Kiat said there is a general “lack of global wealth management experience” in Asia, which families are struggling with.
He is an executive director of Wen Ken Group, a single-family office which manages the wealth of the Wen Ken drug company, a Chinese medicine and health products maker started by four founding families in 1937.
Most Asian families have 80% of their total wealth in their businesses, and don’t want to cash out of them, he said. Private bankers and asset managers chase after the 20% of non-business wealth, yet they don’t tend to provide these business families holistic wealth management solutions.
That lack of support could cause the qualities needed to be an effective family office investment adviser could grow scarcer in the coming years, forcing families to handle more of their financial affairs in-house. That would require up-skilling millennial family members in both investment and tech-related areas such as automating the consolidation of segregated portfolio performance, said Chua.
But there’s a skill deficiency here. Chua said she doubts whether these second or third generation family members have the breadth of skills and experience to successfully handle a family business and how it invests its money too.
“Our observations are that next-gens are more educated and have had more social and work exposure compared to their previous generations,” she said. “But this next generation of leaders would require new and additional skill sets and traits to manage both the family business and its wealth.”
For all the appeal of new technologies, successfully operating a family office remains a business of analysis and judgement. As private banks fail to provide a full package of support services, wealthy families may well need to consider how to gain these capabilities.
New technology offers an appealing avenue of investment, and can help a family automate their internal investment procedures. But it’s not a replacement for knowledge and experience. At least, not yet.
This story was adapted from a feature that originally appeared in AsianInvestor's Summer 2019 edition.