Putting a family fortune to work for the greater good

When he reflects back on a life split between Asia, Africa and Europe, 56-year-old manufacturing tycoon and philanthropist James Chen feels “truly blessed”.

He still remembers his first sight of Europe as a young boy, in transit from his Hong Kong home to a stint in Africa, where his father was developing the family business.

“My parents in those days would always stop in Europe,” he reminisces, sipping green tea in Soho’s quirky Ham Yard Hotel, casually dressed in jeans and trainers. “From an early age I was exposed to contrasts.” 

In those days Hong Kong was a city of migrants, considered to be part of the “third” or “developing world”, differing sharply from the old-time splendour of Paris, Zurich and Geneva.

While observing this split between rich and poor started to give Mr Chen inspiration for philanthropy and impact investing goals even during his youth, it is his family’s industrial heritage which has made these activities possible.

Mr Chen is chairman of both Wahum Group Holdings, a third generation family-owned manufacturing business based in Nigeria, producing power cables, enamelware and cardboard packaging, emplying 1,200 people in three factories, and the philanthropically-oriented Chen Yet-Sen Family Foundation.

Social impact

He sees his most important role as achieving healthy returns from managing the assets of the group’s family office, Legacy Advisors, so that funds can be channelled into socially enriching projects in poorer countries. 

His philosophy for managing the family office assets follows the “blended value investing” doctrine devised by California-based academic and “social entrepreneur” Jed Emerson, essentially integrating social and financial returns.

“For wealthy investors, in a family office environment, you are typically investing in the metrics of financial risk and return,” says the bespectacled, live wire Mr Chen. “But as a high net worth individual, you also have the opportunity to leverage that and consider social and environmental returns.” 

This can often be done, he says, by utilising networks of wealthy families. 

While much investment activity of family offices still focuses around balanced equity/bond/cash portfolios, the story is totally different in tranches allocated to “alternative” assets, he believes, and the overall picture is changing too. 

“When it comes to private equity and venture capital investments, families are no longer judging these just by financial returns,” he says, with resources increasingly being devoted to seeking social and environmental benefits.

Today, these alternative tranches are getting larger and larger, as the world goes through a seismic economic shift. “Standard portfolio allocations have performed very well in the post-war period,” states Mr Chen. 

But the authorities’ reaction to the global financial crisis of 2008 suddenly made the job of investment professionals much more complex.

“My remit when managing my family’s assets was always one of wealth preservation,” affirms Mr Chen. “So I asked myself: should I do what the central banks were trying to force us to do and take more risk? The central banks were spiking the punch bowl. But I knew the party would soon be over and I wanted to still be standing when it was.”

Portfolio construction 

Because his family office has a much longer-term perspective even than most pension schemes, he resisted pressure to boost bond and equity allocations overnight and preferred to develop an alternative portfolio at his own pace.

The result is a highly concentrated portfolio, with almost zero bonds and an overweight in gold, plus a significant slice in direct, private investments.

“What the central banks have done has disrupted not just the bond market, but affected all equity markets too,” reflects Mr Chen. “I am no longer comfortable risking assets and investing in those markets.”

Geopolitical uncertainties have also led many investors to avoid certain markets, including the UK, he says. “I speak to many investors in China and Hong Kong. While they see uncertainty around Brexit – and you can sense the anxiety and division at any gathering in UK society – they are a lot more worried about what will happen if people get too disillusioned with the process and [opposition leader Jeremy] Corbyn and his lot get in, and then FDI could really dry up.”

The approach he prefers is direct investments for impact, through bringing business techniques to the heart of philanthropy, rather than running these operations as a charity. He is left bemused by donors who “write big cheques”, yet refuse to get involved in their good causes.

“I am surprised that the business community has one way of doing things for their business, and that they do not apply the same intelligence to philanthropy,” he says, suggesting that successful business families must apply “deep domain expertise” in their chosen impact investing projects.

He sees a “gulf in experience” between entrepreneurs prepared to roll up their sleeves and integrate business thinking into philanthropy, and laid back donors who fail to engage. Mr Chen subscribes to the “audacious philanthropy” concept described in the Harvard Business Review, requiring “big bets” of $10m plus to affect change over an extended period.

“When you talk to philanthropists, many think they are in it for the long haul if they commit for three years,” he says smiling. “But real social change takes more than a decade and often at least 20 years.”

Many private equity funds are “tweaking their model” in search of enhanced performance – they concentrate on raising capital rather than investing it wisely and effectively. “High net worth philanthropists are the only group that is watching how the capital is invested,” he adds.

The situation is not helped by an ambivalent relationship the family offices have with conflicted private banks, caring more about profits than returns. “Banks could play a really positive role by connecting people and catalysing change,” he says. “In terms of size, UBS is the whale in this area. They understand the challenges,” but like other players, still have a long way to go in building relationships with philanthropists.

“What is most important to them is not to do something which disappoints their client and risks losing their mandate on the profitable side of their business. They struggle with that reality.”

Vision for change

James Chen launched his Vision for a Nation initiative for universal supply of glasses in Rwanda in 2010. His foundation put 2,700 nurses through three days of training, before sending them out to 15,000 villages across Rwanda to test citizens to find out who needed glasses. Over five years, the programme tested 2.5m people, of which 150,000 purchased glasses at $1.50 per pair.

He plans to eventually roll this initiative out through Asian countries, to tackle easily addressed sight problems affecting 2.5bn people. His Clearly campaign aims to ensure that everyone who needs a pair of glasses can get them, wherever they live in the world.

Mr Chen honed his impact investment techniques working on his late father Robert’s projects, including the building of a specialist private cardiovascular hospital, just outside Shanghai in China. Through this initiative, the Chens hoped to set the standard of healthcare in China for other hospitals to follow.

“The needs of patients tend to have a very low priority in the Chinese system, which is very dysfunctional,” says Mr Chen. By teaming up with a healthcare entrepreneur and a Chinese doctor schooled in Western-style hospital management, he hoped to slowly change this mentality.

From the initial raising of seed capital to obtaining licencing approval has taken 10 years so far. But the project of running the for-profit Delta Health hospital remains an uphill struggle, with challenges becoming ever more apparent since the facility opened its doors in 2016. “The whole mindset, the bedside manners, were very different to our expectations,” he reveals.

In order to foster the type of medical service he had personally experienced in the UK and US, Mr Chen has overseen the secondment and training of Chinese doctors and nurses at the New York-Presbyterian hospital.

Mr Chen now attends the Chinese hospital regularly for physical examinations, to make sure standards are improving and remains cautiously optimistic. “In 10 years, we might get to where we want to be,” he says. “We pay above the market rate for doctors and have outlawed the handover of ‘red packets’ of cash to smooth access to medical care. Some people respond well to that, but others do not. We need staff with inner empathy, not those with a transactional nature.”