Asia-Pacific Family Office Report: The impact of inflation forces a focus on alternative investments, real estate and shares

Family offices based in the Asia-Pacific region are increasingly adopting strategies to mitigate the negative impact of inflation, according to the new Family Office Asia-Pacific Report 2022 by Campden Wealth and Raffles Family Office.

“Given concerns about inflation, rising interest rates, geopolitical risks and a potential recession ahead, Asia-Pacific family offices have moved more towards a balanced investment strategy this year, bucking last year’s trend, where they have moved towards growth,” says Dr Rebecca Gooch, senior director of research at Campden Wealth. “That said, the need for portfolio diversification is always in play, and family offices’ biggest returns have come from more adventurous private equity and venture capital investments. In turn, while family offices are more careful to de-risk their portfolios this year, they are likely to maintain a reasonable level of growth-oriented investments and be on the lookout for opportunistic deals.”

The report found that 88% of respondents cited inflation as the biggest risk to financial markets (a significant increase of 19% from 69% in the 2021 Asia-Pacific report), closely followed by rising interest rates (72%) and geopolitical risk (58%). As a result, 42% of family offices adopt a balanced investment strategy (a 2% increase from 2021), while 30% adopt a growth strategy (a 2% decrease from the previous year). The remaining 28% adopt a strategy based on wealth preservation, a higher proportion than the global average (18%).

“To reduce inflation, Asia-Pacific family offices have increased their exposure to real estate, equities and commodities and reduced the duration of their bond portfolios,” says Dr Gooch. “However, the timing is critical as both stock and bond prices have declined this year, so hedging strategies may have enjoyed limited success.”

“As inflationary pressures persist in global markets, interest rates are being forced higher, with the US and European economies teetering on the brink of recession,” says Chi-man Kwan, group CEO and co-founder at Raffles Family Office. “Family offices have started to hedge against inflation, with just over half looking for investment opportunities for diversification and a growing number interested in increasing their allocation to direct private equity.”

These inflation mitigation strategies have seen Asia-Pacific family offices increasing their holdings in real estate (52%), equities (50%), commodities (29%) and reducing the duration of bond portfolios (34%). However, despite a more conservative investment approach, 54% of Asia-Pacific family offices remain on the lookout for new investment opportunities, with 42% indicating a preference for alternative investments.

“Reflecting a wider global trend, Asia-Pacific family offices have adopted sustainable investing at a rapid pace in recent years.”

“We have seen an increase in allocation to alternatives – about 20-25% of assets under management here are in non-traditional products such as private equity, credit and real estate,” says William Chow, deputy group CEO at Raffles Family Office. “As diversification begins to gain importance, particularly during periods of market turbulence, we expect to see this figure continue to grow over the next few years, with family offices looking to generate alpha and achieve optimal risk-adjusted returns compared to public assets. “

The report found that 42% of family offices are now engaged in sustainable investment, with 29% of their portfolios dedicated to sustainable investment (up 4% from 2021 and 2% higher than the global average). This figure is expected to rise to 50% within five years. Concern over climate change has seen an increased focus on green technology (62% of family offices already invested), but in addition digital transformation (52%), artificial intelligence (44%), biotechnology (42%) and healthcare (38%). %) are popular technologies supported by family offices in Asia Pacific.

“Reflecting a wider global trend, family offices in the Asia-Pacific have adopted sustainable investing at a rapid pace in recent years,” says Dr Gooch. “It has long been understood that the next generation is a key factor behind this. It is the emerging generation that will feel the effects of climate change more than any that came before it, and this has become a galvanizing factor among those who see sustainable investment, mixed with considerable private capital, as a vehicle strong to combat it. .”

This future driven generation is also at the forefront of a major succession transition, with nearly a third of Asia Pacific respondents expecting to see the next generation take over in the next decade. However, the report found that while 70% of family offices in the Asia-Pacific region have a succession plan in place (compared to a global average of 61%), three-quarters of these plans are relatively casual, with only informally agreed. (18%) or unwritten (25%) or under development (32%).

“The research highlights the importance of having clearly defined and enforceable succession plans in Asia-Pacific,” says Dr Gooch. “In a family environment, discussions of succession planning can be a sensitive issue, hence the prevalence of relatively casual plans. However, this can cause problems further down the line when succession occurs and the next generation takes over. Families can mitigate this by training family members, other internal staff, or hiring outside professionals to provide support.”

Click below to learn more about the Asia-Pacific Family Office Report 2022.

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