SE Asia's family office boom, SWFs driving alt asset demand
Southeast Asia's investment landscape is experiencing a significant transformation, driven by the increasing presence of family offices along with sovereign wealth funds.
They are also key players in boosting demand for private market assets, acccording to the latest ‘LPs in Southeast Asia factsheet’ by alternatives data provide Preqin.
The surge in family offices can be largely attributable to the rapid rise of high-net-worth (HNWI) and ultra-high-net-worth individuals (UHNWIs) across the region.
Additionally, proactive initiatives by countries such as Singapore to attract these family offices play a significant role, according to Harsha Narayan, author of the report at Preqin.
Preqin
“Southeast Asia, along with the broader Asia-Pacific region, has witnessed significant wealth growth,” Narayan told AsianInvestor.
"The proportion of family offices making up Southeast Asia-based investors has grown to a third by June 2024 from a fifth in 2020," the report said.
In addition, almost 50% of family offices are now headquartered in Hong Kong or Singapore, it noted.
About 39% of APAC family offices plan to increase exposure to alternatives, Preqin said.
According to Knight Frank, the UHNWI population in Asia-Pacific grew by nearly 51% over the five years leading up to 2022.
Within Southeast Asia, markets such as Singapore, Malaysia, and Indonesia are among the top 10 fastest-growing UHNWI markets, with wealthy populations expanding by 7-9%.
“As wealth grows, so does the complexity of managing it, leading families to seek more solutions like family offices to help with matters ranging from investment management to estate and succession planning, wealth preservation, tax efficiency, and intergenerational wealth transfer,” said Narayan.
Southeast Asia’s regulatory environment is also evolving, with countries implementing frameworks that facilitate the operation of family offices.
“Singapore, in particular, has introduced structures like the variable capital company (VCC) and favorable tax regimes that have made it especially attractive for family offices.”
ALTERNATIVE ALLOCATIONS
The high-interest rate environment and geopolitical risks have significantly influenced APAC family offices in their decisions to ramp up exposures to alternative investments.
“This was according to a survey we conducted amongst family offices in APAC in April 2023. The survey highlighted that the key concerns for these investors were inflation (80%), rising interest rates (70%), and geopolitical risks (67%),” said Narayan.
The survey also underscored the critical role that alternative investments play in navigating these uncertainties.
“Approximately 73% of respondents indicated that they plan to maintain or increase their exposure to alternatives, with 39% specifically aiming to boost their allocations over the next 12 months,” she said.
These market concerns have prompted family offices to seek alternative investments that offer uncorrelated returns, better protection against inflation, and higher yields in a challenging market.
“Asset classes like private debt, in particular, have been appealing to investors due to their continued strong performance – given their floating rate feature in a higher interest rate environment,” said Narayan.
Also read: Singapore family office turns wary about private credit
Additionally, institutional investors have turned more optimistic about private equity compared to previous years.
“According to our global investor outlook survey, the proportion of investors who view the asset class as overvalued has dropped by 20 percentage points compared to 2022,” said Narayan.
For Southeast Asian investors, the growing interest in private equity and venture capital is also driven by favourable regional conditions, she said.
“Southeast Asia has become one of the most attractive emerging markets for LPs looking at private equity and venture capital, second only to India.”
SWF BOOST
Some of Southeast Asia’s more formidable sovereign wealth funds have been pivotal in driving the growth of private capital markets in the region, according to Preqin’s report.
For instance, Singapore’s Temasek Holdings has significantly increased its allocation to unlisted assets, up from around 20% to 52% over the past two decades.
The company’s senior management acknowledges that private markets have delivered returns exceeding the cost of capital and outperforming their listed portfolio.
Similarly, Malaysia’s Khazanah Nasional Berhad has consistently allocated around 20% to private markets between 2018 and 2023, with an increasing share directed towards global private markets in recent years, the report said.
“Temasek and Khazanah are strategically balancing their global diversification efforts while continuing to prioritise domestic investments. Both funds remain heavily invested in their home countries, aligning with national economic priorities,” said Narayan.
Temasek Holdings continues to maintain a substantial portion (27%) of its portfolio in Singapore, while more than half of Khazanah’s portfolio is in Malaysia’s public markets.
Additionally, Khazanah is an active investor in Malaysia’s venture capital industries alongside domestic funds, added Narayan.
“In April, Khazanah announced that it would invest up to MYR 3 billion ($627 million) in startups in Southeast Asia with local pension fund Kumpulan Wang Persaraan Diperbadankan (KWAP) and Blue Chip Venture Capital.”