With public markets under pressure, family offices are looking at alternative investments such as private credit and real estate to boost portfolio performance, according to a panel of experts at the Family Office Alternatives Exchange 2022 organised by AsianInvestor yesterday. (May 19)
“When equities are down, fixed income is down, you need alternatives to provide either the steady yield that you've been expecting from fixed income or the returns from equities that you want to allocate to your bucket,” said Chauwei Yak, founder and chief executive of GAO Capital, a Singapore registered fund management company.
She said her firm, which started to increase allocation to alternative assets two years ago, is seeing the benefits of that strategy.
At Treasure Capital Asia, a Hong Kong-based single-family office, it takes a long-term investment view, focusing on direct private deals and collaborating with other family offices, said Alex Chan, the firm’s partner.
“We spend most of our time and energy on working with other family offices and organisations in terms of discovering these deals and co-investing in them,” he said.
RISE IN PRIVATE CREDIT
The growing interest in the private market, in particular credit, has been partly driven by the widening credit risks in the public market, said Noli De Pala, chief investment officer at TriLake Partners, a Singapore-based wealth management firm.
“The kind of risk premium private credit offers lies in the theoretical sweet spot that you would have at a time like this,” he said, adding that credit spreads – which have been fairly stable in the past three months – have been feeding investor appetite in the private market.
He said product innovation in the form of repackaging, and the use of special vehicles to make investments more accessible and affordable, is another factor behind the recent resurgence in private credit.
“And for the most part, private credit doesn't have the same kind of lock up as private equity does,” he said, noting that the drop in IPO activities had impacted exit opportunities for private equity funds.
Treasure Capital’s Chan said while there’s been a lot of buzz over private credit in recent months, there’s no visibility on how much investments have gone into the asset class, or whether the deals are originating from Asia or outside of it, adding that his firm will take a studied approach until there’s more clarity.
“As far as I know, there’s been a lot of dry powder with the equity side, so perhaps a significant uptake will go into private credit. You know, we have private equity, we have real estate, why not private credit,” he said.
REAL ESTATE – SAFE HAVEN AND INFLATION HEDGE
The downturn in the public market will also impact real estate investments, said TriLake’s de Pala. “The transmission of just the simple sheer appetite for risk on the public side will obviously affect … real estate, for good or for bad,” he said.
He said that real estate – a traditional refuge during market volatility – could attract interest from investors seeking a safe haven and higher yield from battered stocks and bonds, adding that a return of three to six percent could even be considered a good return under present conditions.
He said he was pleased with the overall performance of his firm’s real estate portfolio.
“It's performed quite well. And it's really been across the board. It's not just been logistics or industrial. But there have been bright spots in most of them,” he said.
Real estate could also be an inflation hedge, said Treasure Capital’s Chan.
“If we're able to increase rents on our properties and control our costs or perhaps pass on some of the inflation pressure onto our tenants, that would be what we're able to try to do in this environment.”
The increased demand for alternative assets amid the current challenging market conditions has led to closer collaboration in the industry, including among family offices, said GAO Capital’s Yak.
“There's a bit more respect for professionalism in the various fields. If you're an expert in real estate or an expert in private credit, and for us, we are experts in hedge fund strategies … there's more of a dialogue. There’s more willingness to explore ways to generate yield or return,” she said.