Asia-Pacific family offices look towards alternative investments, real estate, and equities amid inflationary backdrop
A report launched by Raffles Family Office and Campden Wealth has found that family offices in the Asia-Pacific region are increasingly adopting strategies to mitigate the adverse impact of inflation, which was the most commonly cited risk for financial markets.
“The Asia-Pacific Family Office Report”, the Asia-Pacific edition of The Global Family Office Report: Regional Series, is based on statistical analysis of 382 surveys of family offices worldwide, with 76 (20%) from Asia-Pacific.
Mr. Chi-man Kwan, Group CEO and Co-Founder at Raffles Family Office, said: “As inflationary pressures persist in global markets, interest rates are being forced higher, with U.S. and European economies on the cusp of recession. This year’s survey found that the majority (88%) of Asia-Pacific family offices identified inflation as the biggest threat to financial markets – a marked increase of 19% from 69% in our 2021 Asia-Pacific edition. Family offices have started to hedge against inflation, with slightly over half looking for investment opportunities for diversification, and a growing number interested in increasing their allocation in direct investments in private equity. We are delighted to continue our partnership with Campden Wealth in exploring the investment trends and themes that shape the family office landscape across Asia-Pacific. This year’s edition continues to provide valuable insight on the changing preferences of some of the world’s wealthiest families, in the face of economic uncertainty. As a leading multi-family office in Asia, these findings continue to shape our strategies and allow us to continue serving the needs of both ultra-high-net worth families and their family offices and bring them long-term value.”
88% of respondents cited inflation as the biggest risk to financial markets, closely followed by rising interest rates (72%) and geopolitical risk (58%). 42% of family offices are adopting a balanced investment strategy (up from 40% last year), while 30% are adopting a growth strategy (compared to 32% in last year). The remaining 28% adopt a wealth preservation-based strategy, a higher proportion than the global average (18%).
Mitigation strategies adopted include increasing exposure to real estate (52%), equities (50%), commodities (29%), and reducing the duration of bond portfolios (34%). Family offices look to these measures as a form of insulation from the challenging conditions present in the public markets.
Despite challenging macroeconomic fundamentals, 54% of Asia-Pacific family offices remain on the lookout for new investment opportunities, particularly those that would add diversification to portfolios. 42% indicated a preference for alternative investments, highlighting the importance of diversification for these family offices.
Mr. William Chow, Deputy Group CEO at Raffles Family Office, said: “At Raffles Family Office, we have seen an increase in allocation to alternatives – about 20-25% of assets managed here are in non-traditional products, such as private equity, credit, and real estate. As diversification begins to gain importance especially during times of market turmoil, we expect to see this figure continue to increase in the next few years, with family offices looking to generate alpha and achieve optimal risk-adjusted returns in comparison to public assets.”
42% of family offices are now engaged in sustainable investing, with 29% of their portfolios dedicated to sustainable investments – an increase of four percentage points from last year, and two percentage points higher than the global average (27%). This is expected to increase to 50% over the next five years.
Family offices are expected to increase their investment in green tech (62% of family offices already invested), digital transformation (52%), artificial intelligence (44%), biotech (42%), and healthcare (38%). Despite crypto price declines, 59% of family offices who have invested in cryptocurrency continue to hold their allocation, with 25% actively wanting to increase their investment.
Rebecca Gooch, Senior Director of Research, at Campden Wealth said: “Family offices in Asia-Pacific have long been avid investors in technology, with healthcare tech, green tech and artificial intelligence being the three most prominent areas they invest in. However, family offices also represent a powerful pool of private funding for emerging areas within tech. This year we have discovered that roughly one-in-four family offices in Asia-Pacific invest in the metaverse, one-in-five in Web 3.0 and one-in-10 in NFTs. These are also areas that family offices plan on allocating more to in 2023. In another wider trend, family offices have also been adopting sustainable investing at a rapid pace. Climate change has been a galvanising factor here, as family offices see that sustainable investing, mixed with sizeable private capital, is a powerful vehicle that can be used to combat the climate crisis."
70% of family offices in the Asia-Pacific region have a succession plan in place, nine percentage points higher than the global average (61%). However, three-quarters of these plans are relatively casual, being only informally agreed (18%) or unwritten (25%), or are in the process of development (32%). Asia-Pacific families (25%) significantly lag behind their global peers (42%) in formal written plans.
The presence of a patriarch or matriarch reluctant to relinquish control makes succession planning and the discussion of sensitive matters problematic, according to a third of respondents. Other challenges include the younger generation being too young or inadequately qualified to take over. However, nearly a third of Asia-Pacific respondents expect to see Next Gens assume control over the coming decade.
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