Firms hit by Covid draw family investor capital
The Covid-19 pandemic has had a significant impact on the level of investment support for businesses in Asia — in some ways, it has driven investment to areas of greatest need, like the healthcare sector. However, family offices have expressed their concerns for other sectors in need of impact investment.
“Covid has caused so much uncertainty for businesses,” Cheong Wing Kiat, principal of the Singapore-based Wen Ken family office, told AsianInvestor.
Businesses have been forced to accelerate their changes, he said, “especially in digitising operations, streamlining, or diversifying supply chains and divesting of non-core assets and activities, while collaborating with new strategic partners.”
Michael Au, director of impact and venture investment specialist at District Capital in Hong Kong, said private capital will be a crucial element of the rebuild.
“To reach their policy goals, governments are looking to the private sector for innovative solutions, creating new market opportunities to solve wider social and environmental issues,” he told AsianInvestor.
The good news is that more Asian business leaders seem poised to become impact investors. In a survey of ultra-high-net-worth individuals from around Asia, almost 80% reported engaging in impact investment, according to the survey by the Hong Kong-based Centre for Asian Philanthropy and Society (CAPS).
The Global Impact Investing Network (GIIN) defines impact investing as investment made with the intention to generate positive, measurable social and environmental impact, alongside a financial return.
But social enterprises point to high financial return expectations as the single biggest barrier to raising private investment. According to CAPS, most impact investors (60%) want a financial return that equals or beats the market.
“Asia hosts 60% of the world’s population and accounts for nearly 50% of global GDP, but only 16% of global impact investment is allocated to Asia,” said Ruth Shapiro, co-founder and chief executive of CAPS.
“Impact investors say the number of investable options in Asia is too small, while social enterprises point to a lack of risk appetite and patience on the part of investors. Seed funding is in short supply, and supportive ecosystems are still young and evolving.”
A NEED FOR PRIVATE DONORS
Therefore, in some cases, particularly for social enterprises, there is a need for more than impact investing.
Private donors play a critical part in supporting growing businesses. They have the benefit of speedy deployment of capital, which is critical in times of disaster, according to Shapiro.
As the world has responded to the health crisis, non-profits and social enterprises have doubled down on their purpose, she said.
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“Early-stage social enterprises particularly need grant funding. Grants provide scaffolding at the early stage and help organisations fortify their double bottom line in their early days,” said Shapiro.
She added that even though there "has been an outpouring of private capital being deployed towards fighting the pandemic, this capital has tended to flow to larger, well-known charities engaged in Covid-related work.”
Funding for other ventures has shrunk, as the pandemic brought all activity to a halt. Fundraising events — the lifeline of many social enterprises — have been cancelled. Resources that might otherwise have supported social service delivery have been diverted to fighting Covid-19.
“Our partners across Asia were especially concerned about the survival of small and medium organisations, many of whom were already on the brink of closing,” said Shapiro.
All startups have high failure rates, but Shapiro said there is a dual cost of a failed social enterprise: to the organisation itself and to society.
Family offices are well placed to fill that gap, as families put greater emphasis on social good in their investment approach, District Capital's Au said.
“We are witnessing the biggest wealth transfer in human history, and undoubtedly we are seeing next-gen asset owners having a stronger drive towards value-aligned investing,” he said
Wen Ken Group's Cheong agreed, adding the next generation in families "prefer to pursue their own dreams in founding new ventures, which will make an impact on the world, than to inherit their parents’ or grandparents’ conventional businesses, which merely make money.”
Cheong added that his own children — two living in the US and one in Singapore — are happily pursuing their own professional careers. “They are not keen on the extended family’s traditional medicines business, nor the direct family’s private equity and property investment business.”