ESG and private equity dominate Far Eastern family forum debate

Sophisticated family offices are sitting on the sidelines with large stocks of “dry powder” , waiting for the right time to deploy resources, say leading Asia Pacific private bankers. Many have substantial cash allocations, but are keen to make these assets work for the family. 

Credit Suisse has family clients with cash positions as large as 40 to 60 per cent.

UBS says Asian family offices are looking for like-minded partners to help take advantage of potential investment opportunities. Swiss banks are providing these clients with forums so they can meet and swap investment ideas.

C0-investment partners typically need to be located in a different region rather than based in Asia. Private equity deals, which were of most interest to Credit Suisse clients, would not normally be shared with local partners.  

Additionally, it is important for Asian families to construct portfolio allocations in areas totally unconnected to their operating business in order to diversify risk.

Deploying cash

Lombard Odier also sees strong interest in private equity, with families investing in firms through incubators, acting as prototypes for new arms of the family business. 

This notion of putting spare cash to work swiftly and at the right time remains a common theme across Asia Pacific, says Lee Wong, head of family services for Asia at Lombard Odier in Singapore. 

“This is an efficiency issue. Asians want to deploy cash into our business or financial assets,” she says. “Our clients typically think if they can’t see a viable business venture, they might want to buy real estate for capital gains.”

Citi is seeing cash balances gradually moving to illiquid assets like hedge funds and private equity, particularly in China. Those assets linked with environmental, social and governance (ESG) principles are proving most popular with ‘next generation’ family members. 

Historically, philanthropic families believed there was a price to pay for investing ethically, but improved screening has made ESG portfolios much more accessible.

It is really only the billionaire families which have the time, resources and staff to create dedicated impact investment programmes.

“These families want to make sure the dollars deployed are going to the right people, at the right time in the right way,” says Roger Bacon, head of investment for Citi Private Bank in Asia Pacific.

No easy task 

Among this handful of serious impact investors is James Chen, chairman of both Wahum Holdings, his family-owned manufacturing business in Nigeria, and the philanthropic Chen Yet-Sen Family Foundation in Hong Kong. The group’s family office, Legacy Advisors, invests in healthcare facilities in mainland China and eyeglasses for rural workers in Africa.

Culturally it is very hard for Asian family offices to invest for impact, he says. “Chinese families tend to be very private about their wealth and feel uncomfortable discussing it.”

But he sees the private bank model as more dysfunctional. “A private banker tells you he cares about what the client needs,” says Mr Chen. “But the first priority is to protect the bank and make enough money from the client.”

Most Asian clients have become cynical of this model, he says, but only those with enough assets can afford to start a family office and take control of their investments.