Asian family offices prefer club deals than funds

Family offices in the region continue to have a positive view of private equity but increasingly prefer co-investments with their peers than invest in fund managers.

Ultra-high net worth families in Asia favour clubbing together with other family offices than putting their money in fund managers, multiple market participants told Private Equity International.

“Asia is a lot more a relationship-driven place than the west which is slightly more transactional. If you have those relationships, then the delta by which you can outperform the market averages is much higher in Asia than it is in the US and Europe,” said John Kim, a managing partner at Amasia, a Singapore-based venture capital firm whose investors are mainly Asian family offices.

“This leads to a hesitance on the part of Asian family offices to deploy capital through third party managers. They often think: ‘I’m able to sit here and outperform the market by so much because I have relationships with the government and other businesses. Why would I outsource the management of capital and pay fees on it to a third party?’ It does happen, but definitely to a lesser extent than in the west.”

This mentality according to Kim also means there is less professionalisation of family offices in Asia because the patriarch and children are involved in the decision-making.

Gagik Apkarian, a London-based managing director of investment and advisory firm Tetrad Capital Partners, agrees that in terms of culture and process, large institutions are at times different from private investment offices. “Large institutions tend to have more checks and balances, more diversity of perspective, more systematic approach and greater freedom to dissent by senior team members.”

However, Apkarian did add that institutions are not immune from similar attributes, for instance when headed by an autocratic chief investment officer who in effect takes the same role as a patriarch/matriarch of a tightly-controlled family office.

Family offices in Asia – predominantly based in Hong Kong and Singapore – also prefer to keep their money in their operating businesses, not just to transfer wealth but for succession management, Eva Law, founder and chairman of the Association of Family Offices in Asia, said.

“Family offices are investing more now in emerging industries such as technology and internet, but these investments are still close to their core businesses. For example, if they are in the medical industry, they would eye med tech deals or wearable technology.”

Apkarian also pointed out that many private investment offices see the merit of direct investing: better alignment of interests, greater transparency, potentially more control, even at times a mechanism to instil an investment mind-set in the younger generation of family members. “However, when it comes to the crunch to write a meaningfully-sized cheque hesitation can set in, particularly in the first few deals.”

Family offices and foundations nonetheless continue to have a very positive view of private equity and are more willing to allocate money longer-term and accept more illiquidity, the Annual Family Office and Foundation Private Equity Survey found.

The survey, ran by PEI last year in collaboration with secondaries specialist Montana Capital Partners, polled foundations, multi-family offices and single family offices globally. It revealed that nine out of ten respondents kept their allocation to the asset class constant or increased it over the past year. Meanwhile for the upcoming 12-month period, 51 percent of respondents intend to keep their allocations constant and 43 percent plan to increase it further from current levels.

“Family offices in real estate do pretty well because it’s not an operationally intensive asset class. If you find a good building with good value, then you can just invest and not do a whole lot more with it,” Kim pointed out.

“However, when you are investing with companies there are certain situations where a family might be able to add operational expertise, but oftentimes there is a benefit to having private equity-minded and operationally-focused folks investing in private companies.”