Singapore, HK family offices' appetite for digital assets dims
Family offices on Singapore and Hong Kong appear to be taking a dimmer view of digital assets, despite early signs that the “crypto winter” of the past year may be undergoing something of a thaw.
“If the crypto market was on fire, family offices would say, ‘Right, we can see the profit there’,” Tuck Meng Yee, founder of Singapore based single-family office JRT Partners, told AsianInvestor. “But right now, they can’t see any profit in it, so why bother incurring the cost?”
Yee’s comments chime with the findings of a survey by Goldman Sachs released in May, which found that the proportion of family offices globally not invested in digital assets and not interested in investing in them rose from 39% in 2021 to 62%. The proportion of those potentially interested in digital assets in the future fell from 45% to just 12%, according to the survey.
RESOURCE DRAIN
An executive from another single-family office who spoke on condition of anonymity said that their family office did not invest in digital assets for a number of practical reasons, including a simple lack of familiarity with the asset class.
“Our principle is very much: ‘If you don’t understand something, don’t invest in it’,” the executive told AsianInvestor. “If we wanted to, we could understand it a lot better, but it wouldn’t ever be a big part of our portfolio, so is it worth the resources, or dedicating weeks to understanding Bitcoin or other coins and then putting a very small allocation into it? It just doesn’t make sense from a resourcing viewpoint.”
Iu-Jin Ong, founder of Hong Kong-headquartered single-family office Ambitum Capital, said his office had invested in digital assets, but that it had cut its allocation significantly.
“Is there any reason to be rushing back in right now? Not really,” he said. “Right now, even established digital assets are not going anywhere and there’s no appreciation.”
HIGHER RETURNS ELSEWHERE
Yee said that in addition to knowledge barriers and the lack of market direction, the current high interest rate environment was also dissuading family offices from investing in digital assets.
“Baseline interest rates have gone up to a respectable level, and people are saying, ‘OK, I can actually pay my liabilities now with interest rates at a more realistic level. I don't have to take as much risk to get the same yield compared to three years ago.
“Your opportunity cost has gone up because you can get 5% in real coins or real currencies, and now you don't need to lend Bitcoin to get 5%,” Yee said. “Even at 8% Bitcoin is unacceptable now, because the risk premium is just not good enough.”
Irfan Ahmad, head of digital asset commercialisation for Asia-Pacific and the Middle East & North Africa at State Street Digital, told AsianInvestor he has seen more caution among family office investors when it comes to digital assets.
“We've seen more of a realistic approach to how appropriate risk management measures should be taken within this space,” he said. “Interest rate-related financial products, for instance, might be offering returns that investors are quite happy with, so they may not necessarily be looking to venture into getting an extrapolation of that return through investing in tokenised or digital assets.”
RISK-OFF ENVIRONMENT
Michael Marquardt, the Singapore-based Asia chief executive at IQ-EQ, an investor services firm that sets up family offices, said volatility in the digital asset market, most markedly in the crypto segment of it, prompted family offices to reconsider the space.
“In times of volatility and with the increase in inflation, people tend to become more conservative,” he told AsianInvestor. “If people are becoming more conservative, they're doing less with risk assets, and crypto is a risk asset competing against other things. It's a risk-off environment, and crypto is high-risk, so that's why some of the money has come out of it.”
Ambitum’s Ong said that as the evolution of regulation in the space progresses, risks would ease.
“In this phase of consolidation, when people go risk-off, I think scaling back is completely logical," he said. "But as regulation comes in, it’ll attract new money in.”
Ben Caselin, vice president and chief strategy officer at Dubai-headquartered digital asset exchange MaskEX, and former vice president of now-shuttered Hong Kong-focused crypto exchange AAX, said interest rates were a strong determinant of investment trends in digital assets.
“The moment the interest rate environment changes, we’re going to see quite an uptick in the markets and a return to these kinds of risk assets,” he told AsianInvestor.
The single-family office executive who declined to be identified for this story echoed that sentiment, comparing the digital asset space to the internet boom of the late 1990s and early 2000s. The executive said their office would keep its distance, at least for now.
“The 1990s internet was huge, but most people who invested in it didn’t make money,” the executive said. “So why go in early when there’s a nine out of 10 chance you’ll be wiped out? Yes, it could be the next big thing – and it is likely something very, very important – but why would we plunge into it early?”