Singapore family office keeps the faith in private equity
Private credit has enjoyed a solid run over the last few years. However, some family offices have reasons to prefer private equity investments in the alternative investment space, a Singapore based single-family office told AsianInvestor.
Golden Vision Capital, the investment arm of a Singapore-based single-family office, finds private equity to be a compelling option as it looks for growth through its investments rather than stability. Private credit investments are currently not a focus for them.
“Investing in private equity offers several advantages and aligns well with the entrepreneurial nature of families seeking growth,” Riady Gozali, managing director at Golden Vision Capital, told AsianInvestor.
“It's crucial to determine whether you prioritise growth or stability when choosing the instrument you prefer,” he added.
The family office is focused on investments in Southeast Asia and the US, and invests via buyout funds, growth funds, and venture capital funds globally in the private equity space.
The evaluation for private credit is very different from the private equity, Gozali shared. “For private credit, the emphasis is on underwriting governance and the ability to pay.”
In private credit, the tenure provides an exit, but the upside is capped by the interest rate, leading to only one major downside risk, which is defaulting.
“If a family has a solid underlying business, then private equity presents a great investment opportunity as it gives the family a foundation of understanding business operations and an ability to apply common principles across various business types while investing," he shared.
The UBS Family Office Report 2024 also supports this preference for private equity over private credit by family offices. In 2023 in Southeast Asia, out of a 36% asset allocation that went to alternative investments, 19% was in private equity versus 3% in private debt.
GOING DEEPER
From a private capital structure standpoint, equity is much lower than debt, meaning there’s a much lower overall risk of investing in private credit versus private equity. If a company declares bankruptcy, it must pay its debts before equity, which locks up any equity-based capital that investors may have invested in this company.
However, for Gozali, private equity is an asset class that goes through market cycles, presenting good opportunities for entry and growth beyond just stable returns.
ALSO READ: Private equity sentiment improving, yet fundraising lags
There are also some intangible benefits that family offices gain by being in this space, according to Gozali.
“Investing in PE allows family members to be actively involved in the business world. This engagement provides valuable education and experience, helping younger family members understand business operations, the value of money, and the challenges of raising capital,” Gozali said.
“Engaging with startups and founders offers a hands-on approach to learning about entrepreneurship and business development,” he added.
FOCUS AREAS
For its private investments, Golden Vision Capital is sector-agnostic but has identified three sectors that have growth potential over time: technology, health, and consumer segments. Additionally, it is currently studying sustainability-related sectors, such as the green economy.
Since technology can include many things, Gozali elaborated.
“Here there are two main areas of focus. The first is the more innovative segment, which primarily comes from developed markets. The second area is focused on digitalisation, and although it may not involve breakthrough innovations, it focuses on using technology to meet market demands, such as online travel platforms.”
Artificial Intelligence and its application in fintech, health, and consumer sectors is also being explored by the team. “AI has reached a ‘browser moment’, similar to the accessibility of the internet after the introduction of web browsers,” Gozali said.
The family office is investing in companies that are beyond the early stage and looking for growth capital, Series B, and beyond.
“Firstly, we look at the market potential and growth prospects. Secondly, we evaluate the company itself, particularly the team. We typically back leading companies that have already gone through several rounds of funding and have an established business model with a clear path to profitability,” Gozali said.
To address the knowledge gaps when investing in new sectors in private equity, Gozali recommended working with fund managers who specialise in the sectors the family office prefers, providing focused knowledge and the expertise to make more informed investment decisions.
ALSO READ: Why some Asian family offices prefer working with VC, PE managers
“Firstly, VC funds provide access to a broader range of investment opportunities, as they typically have a diverse portfolio of companies,” he noted.
“Secondly, institutionalising their investments enables us to collaborate with other investors who are also investing in the same VC funds. This collaboration allows us to scale up investments, as it can pool resources with other investors to make larger investments in promising companies,” he added.