Why family offices need to be realistic about impact investing
Family offices might be better off separating profits from the desire to make the world a better place, when it comes to allocating capital.
Awareness of sustainability and impact factors are increasing, but not all environmental, social, and governance (ESG) objectives will fit into investment criteria, speakers at a panel discussion said at AsianInvestor’s Family Office Briefing in Hong Kong on June 18.
“Many family offices have a philanthropic arm. Your philanthropic arm and your investment arm should be completely different, because the criteria are different. Once you mix, you end up with suboptimal results in both markets,” Sean Low, CEO and CIO at Golden Vision Capital (Singapore), said on stage.
Instead, family offices could establish a separate fund for impact investments on the side of the main portfolio, according to Kavi Harilela, director at Harilela Global Advisory and FGA Trust.
The potentially relatively lower return from these allocations would therefore be perceived and scrutinised in a more benign light, the third-generation member of the Hong Kong-based Harilela family argued.
“I try to differentiate because it is a net sum game. If I am sacrificing profits to do a sustainable project, I need to think twice whether that investment fits the returns benchmark or if there is an offset so it sits better elsewhere,” Harilela said on stage.
“Ideally, you want the best of both worlds, but most likely, you're never going to get that at the same time,” he added.
A NEW ERA
Still, as the next generation starts having a bigger say in family office priorities, they bring with them new ideas to prioritise investments that consider sustainability, impact, and ESG.
“Whether it is philanthropy or sustainable and impact investing, there is a need for us to also incorporate these decisions with new eyes. We increasingly see sustainability as a common denominator to the next generation as well,” Alex Chan, partner at Treasure Capital Asia, said on stage.
He sees plenty of opportunities to bridge good investments with a sustainability agenda.
For instance, Treasure Capital Asia is the family office representing two families from Malaysia and Singapore, respectively, with their wealth mainly built within real estate development and education.
“We very much want to incorporate sustainable investments into what we do. We started a joint venture in Singapore last year with social impact related to education, and now we are looking at renewable energy transition investments in Southeast Asia,” Chan said.
GO GREEN
Harilela also sees green energy as a trend to keep focusing on, as the sector still holds unrealised potential and has only just taken off.
“We know that's still hot. Green energy has been around for a long time, but now we have seen true movement towards that space and more activity. A lot more opportunities will come as consciousness of global warming grows further,” he said.
Low also elaborated that he sees benign opportunities to invest in sustainability-related trends. One of these trends is decarbonisation, where being conscious of the net-zero agenda can reveal opportunities related to the replacement of traditional energy sources.
Having spent 17 years in the private equity and infrastructure department of GIC before Golden Vision Capital, Low argued that family offices with any assets that are on the wrong side of the sustainability and green energy agenda, should consider divesting before the rush to the door really takes off.
“If you are in coal, for example, it is probably too late to get out because nobody will finance a buy of coal assets now. Even coal-related infrastructure is no longer in favour, so it's very important to think long about how you exit such assets,” Low said.