Singapore family office sizes up "next big thing" for investors
There is a massive pool of opportunities in tackling climate change waiting for investors wishing to make a real-world impact with their money, according to a senior executive at a single family office based in Singapore.
“We believe the next big thing is trying to mitigate climate change, and if that is the case, there will be about $150 trillion of investment opportunities over the next few decades,” Thomas Riber Knudsen, director at the Rumah Group, told AsianInvestor.
Knudsen also manages the philanthropic arm, Rumah Foundation, where he leads the family’s investment portfolio, which includes traditional equity and impact investments.
“Global businesses are now acknowledging that climate change is causing problems for them. And they want to de-risk the business.”
Within that vast universe of opportunities, investors must assess where the big gaps in funding lie.
“There is a lot investments going into decarbonising the supply chain, but only 2.5% of global emissions comes from air travel. While companies should be investing in decarbonising the supply chain, that isn’t going to change the world.
“Food, energy and construction – those are the big game changers,” Knudsen told AsianInvestor.
SUSTAINABILITY FOCUS
The Singapore family office is known for its strong emphasis on environmentally-focused impact investments.
Its interest areas include sustainable building materials, alternative proteins, the circular economy, carbon projects and advocacy.
Some of its investments include Circulate Capital, which fights ocean plastic; Big Idea Ventures, focused on alternative proteins and agricultural innovation; and Billion Bricks, which is developing net-zero housing.
The Rumah group tends to come in relatively early as investors, so usually the investment is in the form of seed funding or pre-series A funding.
“It’s safe to say we probably have a higher risk profile than most other investors,” said Knudsen. “That's because we feel often that is where capital is put to the most use, when people are trying to turn an idea into a business.”
When searching for impact investment opportunities, the group leads with a focus on impact. “We want to have good returns but we also want to be sure there is impact. Certainly, this means the time horizon and risk is probably on the higher side,” he said.
The family office is open to investing in fairly experimental technologies and solutions to global social challenges, such as plant-based foods.
"Plant-based foods and lab-grown meat are areas of future opportunity [to reduce carbon footprint]. These are going to really impact the planet in a very positive way, but the runway is much further out. The technology still needs to get to a competitive price point,” said Knudsen.
The family offices has integrated ESG considerations and family preferences into its investment framework and excludes certain types of sectors such as fossil fuels, weapons, alcohol, gambling, tobacco and fast fashion, among others.
Over the years, it has gradually adopted an inclusionary approach, reviewing investments on a holistic basis instead of evaluating financial measures alone.
PICKING PARTNERS
Knudsen said the fund typically makes investments directly and into funds. “We rarely come in as anchor investors; we are typically just a regular limited partner,” he said,
Occasionally, the family office will co-invest with other families sharing similar investment interests or goals.
A lot depends on what investments it chooses to make. “When you start understanding the industry, you also start understanding the red flags,” he said.
His chief suggestion: investors should be careful about investing in something they don’t understand. “You should be able to challenge the business model, and understand the space deeply,” he said.
It’s also why Rumah also tends to stick to business areas it knows best, such as ocean conservation and protection.
“The funds we work with in impact are very specific and thematic. We are quite disciplined about this, and we don’t stray away from it,” said Knudsen.
Another element of considering who to partner with is understanding the values of the companies in which investments could be made. “We spend quite a lot of time with founders to see if they are aligned with our own values,” he said.
DO THE HOMEWORK
The family office takes its due diligence very seriously and spends a lot of time understanding not just the financials but also the company as a business entity.
An investment in a forestry project in Indonesia, for instance, may sound like a good impact investment on paper.
The family office’s team, however, will undertake rigorous research on what the project is about, how different stakeholders such as governments view such projects, and whether there are groups that don’t like these projects and why.
In short, it will consider various perspectives before making that investment leap.
“We undertake quite a broad set of due diligence measures,” he said.
The family office also often uses its network to validate the quality and authenticity of funds. “We talk to other investors about their experiences, both good and bad,” said Knudsen.
Investment opportunities are also assessed based on what the family office wants to achieve – sometimes, the intention is purely on generating good returns; other times, it can be about investing to learn more about how the industry operates or through interacting with other investors.