Good time to be private market investors, say family offices
Family offices are seeing demand for their capital in private markets, and with the right entry strategies these alternative investments can be attractive options, family office executives told peers at AsianInvestor’s Family Office Briefing in Hong Kong on June 18.
“It is a great time to be a private funds investor. It is a horrible time to fundraise because of tough private markets, so even a small LP [limited partner] can get access to excellent terms with fund managers,” Sean Low, CEO and CIO at Golden Vision Capital (Singapore), said at a panel discussion.
He emphasised that entry amounts in many commingled alternatives funds are still a considerable size for family offices with less than $1 billion under management, as a minimum ticket size is typically $10 million.
Therefore, family offices below the $1 billion range would gain better diversification and broader access through fund of funds managers.
“It is more efficient to invest through a fund of funds. Sourcing direct deals are also very time consuming, and there might be less clarity on when and how the capital is returned to you,” Low said.
ACCESSIBILITY CHALLENGES
Although family office capital is in demand from alternatives fund managers, selecting and getting access to the desired funds is still a challenge. Networking and relationship building are required, according to Kavi Harilela, director at Harilela Global Advisory and FGA Trust.
“Most of the deals I get access to are sourced either from banks that rejected them or from close contacts that I have co-invested with in the past. It requires a lot of networking to get access to those deals,” the third-generation member of the Hong Kong-based Harilela family said on stage.
In cases where investments are related to the family offices’ fundamental businesses, direct investments can be considered when sector insights are in place, Low argued.
“Unless the direct investment is directly pertaining to your core business, you should not try to do direct private deals,” he said.
Low spent 17 years in the private equity and infrastructure department of Singapore’s GIC before Golden Vision Capital.
He said that management of family wealth and sovereign wealth could be approached with the same notion that the capital is meant to benefit future generations.
Therefore, family offices should be able to take illiquidity risk and allocate considerably to private markets when the circumstances are as attractive as now, Low argued.
VARYING STRATEGIES
Whereas Low is targeting both private equity and private debt, Harilela is currently bullish on private debt specifically.
As financing flight is a problem in the current market, with relatively high interest rates, he expects to see many more private debt deals available in a market where the lack of liquidity is a problem.
“The yields are very high, I would say exceptionally high, compared to what the standard market rates are. And I have finite terms on these loans, so I know when I am getting my money back," Harilela said.
Low argued that if a family office is following the 60/40 portfolio model, some of the 40% fixed income might as well be in private debt.
“The difference between private debt and public debt is basically liquidity, and you get higher returns for private debt. This is historically the best time to invest in private debt because at senior secured risk levels you can get more than 10% returns,” Low said.
On stage with Low and Harilela was Alex Chan, partner at family office Treasure Capital Asia (TCA) representing two families from Malaysia and Singapore, respectively, whose wealth was mainly built within the real estate development and education space.
Chan explained that TCA has not done much in private markets yet, but is seeing increasing demand as the next generation gets involved with investment strategies.
“However, we are sticking with things that we know and have done well over the years, which is real estate development, so for private markets we are looking for a real estate fund manager that shares our ambitions to retrofit buildings to become greener,” Chan said.