An acceleration of the influence of Gen Y family members is altering how families deploy their capital. It is also causing some family investors to rethink their traditional succession plans.
“We are witnessing the biggest wealth transfer in human history, and undoubtedly we are seeing next-gen asset owners having a stronger drive towards value-aligned investing,” said Michael Au, director of impact and venture investment at District Capital in Hong Kong.
Cheong Wing Kiat, principal of the Singapore-based Business Concept family office, agrees: “Those from wealthy families have better education, wider global exposure and are more resourceful. They have more opportunities in what they want to pursue than their parents and grandparents had.”
This generational shift in philosophy is matched by a different approach to investing that is reshaping family porfolios.
“They prefer to pursue their own dreams in founding new ventures which will make an impact on the world, than to inherit their parents’ or grandparents’ conventional businesses, which merely make money,” said Cheong.
His own children are happily pursuing their own professional careers. “They are not keen on the extended family’s traditional medicines business, nor the direct family’s private equity and property investment business.”
Hence, Cheong’s family office is now actively divesting from its direct private equity portfolio, to invest in REITs and ETFs as well as make strategic moves to extend the portfolio into collectibles, including NFTs.
As well as a natural curiosity about all things crypto, next-gen investors are also reflecting greater commitments to net-zero goals. Au said the maturing of carbon markets had led to an increase in traditionally invested capital funnelling towards this growth area.
“This in turn has opened up the path for impact investors to pass the baton and go deeper into addressing other opportunities in climate adaptation and mitigation. We have also seen capital inflows into the renewable energy transition and carbon markets, which of course are important climate impact areas with very clear economic implications.”
Au is seeing more public-private partnership deal structures to address infrastructure level projects. "We have seen these in sectors such as renewable energy, equitable housing, and public health,” he said.
“We have enjoyed great returns in the carbon markets in 2021 and anticipate that we will continue to see success in 2022. We are finding effective structures that help us enhance our climate impact while strengthening yield.”
Although he is shifting the family portfolio to invest in REITs and ETFs as well as making strategic moves to extend the portfolio into collectibles, Cheong said this was not in order to simplify matters owing to a lack of a succession path.
“On the contrary, I have a well thought-out succession plan for my direct family, to fit the successors’ stage of life, skills and passion.”
He said his two sons want to gain experiences working in the USA and are unlikely to be back to Singapore in the near future. Both are looking to follow their own path. His daughter, recently married and living in Singapore “is planning to start a family and will not have time to actively manage the direct PE portfolio in the next few years.”
Despite their lack of involvement now, the children will have some form of ownership in the family holding company, said Cheong. “My daughter will likely be the leader in managing the direct family’s portfolio, currently mainly in direct private equity and direct industrial properties.”
Managing a direct PE portfolio gives the family company the highest returns and best experiential objectives, said Cheong.
“Unlike investing in funds, direct PE needs special skills (Cheong was an investment manager in the VC/PE industry in his early 30s), time commitment and the right chemistry working with partners at portfolio companies.
NFTS AND COLLECTIBLES
In common with many family office investors, Cheong is excited by the promise of new forms of investment such as non-fungible tokens (NFTs) and other collectibles.
“I place NFTs and digital assets under a portfolio company dealing with collectibles, because I managed to find a suitable corporate manager and investor to put ‘skin in the game’.”
The collectibles in the portfolio company are precious and semi-precious gems. For example, the portfolio holds a single 1.9 kg (9,500 carats) rough sapphire, potentially pink star, a single 3.5 kg (17,500 carats) rough Burmese ruby and a single 2.045 kg (10,225 carats) solid rare mineral grandidierite
“The grouping of collectibles offers numerous advantages that would allow integration into this emerging NFT model of value creation and consumer engagement."
Cheong believes that wealthy families, high net worth investors and young professionals should explore investing in crypto and digital assets, “not merely to make fast fortunes at this moment, but to start learning and gaining knowledge.
“That’s why I’m willing to partial divest in a portfolio company, via vendor shares, at discounted valuation, to allow a corporate manager-investor to get involved, and extending the company’s existing business model into NFT, and other digitalisation activities.”
He takes it seriously, as all family office heads must.
“When it comes to family wealth, one has to carry a lot of responsibility. One key reason why I went back to my extended family business (Wen Ken, founded by his grandfather and three friends) in the 90s was to corporatise it, so that my father could retire at age 70.
“I did well and enjoyed my job as investment manager in the PEVC industry. But I had to let go of my professional career as the duty of a son to join the extended family business in Traditional Chinese Medicine (TCM), which was not my education, training and passion at all.”
Having been through that, Cheong said: “I would not want my children to give up their own dreams for the extended family business in TCM or my business in direct PE and property investment.
“However, I would like the direct family wealth to provide my children a safety net for their families in this uncertain world, and additional resources for them to do good for the society.”