Succession planning, low yields among Asian family offices' top concerns
Succession planning has become Asian families’ top-of-mind concern as internal disputes and the Covid pandemic drive concerns over preservation of wealth. In terms of asset allocation, families are looking to riskier assets as returns in 2021 boost their confidence.
“Fewer than a third of Asian families have a proper succession plan in place,” said Manish Tibrewal, chief executive at Maitri Asset Management, which manages funds for family-owned Tolaram.
“We have also seen some early disputes crop up among prominent families in Asia due to lack of succession planning. We have seen a massive shift,” he said during a press briefing on Tuesday (November 30).
Tycoon family disputes have been publicly known. Most recently in Hong Kong, the death of billionaire Stanley Ho last year sparked a feud among his 17 children and four partners over the value of his estate as he reportedly did not have a will, the High Court heard yesterday (December 1).
Families are also haunted by fears that wealth does not pass three generations – a saying in different languages all over the world, and one that has been found to be largely true. Seventy percent of wealthy families lose their wealth by the second generation, and 90% by the third, according to a report by the Williams Group wealth consultancy.
“It's expressed through every language that wealth does not pass through three generations,” Nick Hayward, Asia Pacific director at Campden Wealth, said at a briefing to launch the Global Family Office Report in mid-November.
“The inevitable conclusion is that the enemy to family wealth is the family,” he said. “The family office vehicle, at its most mature and sophisticated, is an antidote to the feuding… What a family office does is provide a professional vehicle to look after the family, and manages it professionally so all the dynamics of greed and various other bits and pieces are removed.”
RISKIER ASSETS
Buoyed by performance in risk assets, even the more conservative families have dialled up their risk appetite and are looking towards listed and private equities.
“Traditionally, families and high-net-worth individuals we spoke to before were focused on fixed income investments. But since the crisis last year, a lot of those assets have shifted to equities, and more so in the private equity space, especially given the recent spate of IPOs which we have seen from unlisted companies earlier,” said Ankit Khandelwal, chief investment officer at Maitri Asset Management.
“People are seeing the exits and getting lured by the return some of those investments have generated. But that does imply that portfolios are more risky. But the flip side is that we have seen leverage being reduced in portfolios. So people are taking more risk, but at least reducing the leverage risk in the portfolio,” he added.
According to the Global Family Office Report by Campden Wealth and Raffles Family Office, 80% of Asia Pacific family offices invest in private equity, with 59% allocating to venture capital direct investments – slightly higher than the global average of 53%.
Maitri Asset Management, which transitioned into a multi-family office in 2019, is bullish on equities but underweight on fixed income for the next year.
“In the near term, given stock valuations were high plus portfolios have generated stellar returns, we expect near-term risk assets to consolidate and even go lower from here, especially given the uncertainty surrounding the Omicron variant. But longer term, there are some structural trends emerging in the economy and which makes us bullish equities for the long run,” he said.
FIXED INCOME AND CASH
On fixed income, Khandelwal said he anticipates government yields to go lower in the near term, which makes the "less excited about fixed income as an asset class".
However, one area of credit that has piqued his interest is Asia high yield, particularly in Chinese property.
"Given the widespread carnage which we have seen in the sector with single B bonds down anywhere between 40 to 50 points for the year and double B down 20 to 30 points, I think the yield that you are getting in this market is attractive and for investors who can stomach the volatility, we recommend being involved in the sector, especially at these valuations," he said.
He added that Maitri will be increasing allocation to cash "given our outlook for increased volatility throughout this year," he said. "With the start-stop of Covid and potentially new variants, which might come even beyond Omicron, it makes sense to have cash and dry powder in the portfolio to take advantage of such situations."
ESG
Two themes that are driving their investment strategy are “decarbonisation and cleaning of the economy,” he added.
Like many other institutional investors, family offices – led by the next generation of the family – are looking more seriously into environmental, social and governance (ESG) integration into their portfolios.
“When it comes to investment themes, I think aside from clean tech, which is already a mainstream investment theme, carbon markets will start to go mainstream. The compliance carbon market continues to progress and that was the output of COP26," Edris Boey, head of ESG Research at Maitri Asset Management, said.
"The voluntary carbon market on the other hand can see huge opportunities for investors, as asset owners increase pressure on managers to do their part in climate financing,” she added.
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This article has been edited to correct the year Maitri transitioned into a multi-family office and Boey's job title.