Published on June 6, 2023, the Preqin APAC Family Office Report 2023 examines how the increasing wealth of ultra-high-net-worth individuals (UHNWIs) in Asia has led to a surge in demand for both single- and multi-family offices. These family offices provide services essential for managing wealth, navigating complex financial regulations, and planning wealth succession.
This report, executive-edited by Lizzie Carroll, draws upon Preqin's data and insights gathered from a survey, a roundtable, and individual interviews involving over 50 single-family and multi-family offices from the leading business hubs of Asia Pacific, including India, China, Hong Kong, South Korea, Singapore, and Australia.
These family offices have a broad range of assets under management (AUM), with 13% managing less than 100 million, 30% managing 100 million to 499 million, 17% managing 500 million to 999 million, and 40% managing 1 billion or more.
Despite the varying AUM, nearly all family offices are modifying their investment strategies in response to uncertain macroeconomic conditions and volatile markets. They are increasingly allocating to alternative asset classes as a means to diversify and protect their portfolios, including in venture capital and private equity, for three key reasons.
Allocation to alternative asset classes, such as early-stage startup deals
In a difficult global economy, APAC family offices are showing interest in alternative investments due to their ability to offer portfolio diversification and uncorrelated returns. 73% of family offices surveyed plan to either maintain or increase their exposure to alternatives in the next year, despite a general cautiousness towards certain asset classes.
Family offices express concerns about private equity portfolios due to falling valuations caused by stock market declines. Still, only 21% plan to reduce their commitments to this asset class, viewing the current market situation as an opportunity to enter at lower valuations and reap benefits from long-term growth.
Venture capital also faces a cautious approach due to the current market uncertainties, with a more significant proportion of investors planning to allocate less capital to this asset class in the next year. Factors such as the low interest rates and high money supply that previously boosted valuations are no longer present, negatively affecting the return generation of VC portfolios.
Nevertheless, family offices are showing a growing preference for early-stage deals due to their resilience to short-term market volatility and potential for higher growth and exit options. Accelerating Asia has experienced this first-hand: After investing in 70 early-stage startups across the region, the overall portfolio valuation has now crossed US$600 million.
With the current economic climate, investors understandably believe that being more selective and strategic in their startup investments is crucial. Fortunately, this selectivity is baked into the processes of most venture capital firms. Accelerating Asia, for example, accepts less than 2% of startup applicants, ensuring that co-investors only back the startups with the most market traction and promise if they choose to diversify into this asset class.
Startup investments balance financials with ESG
While Environmental, Social, and Governance (ESG) factors have gained traction among global institutional investors, APAC family offices have been more measured in adopting ESG investing. Only 37% of family offices surveyed by Preqin currently have an ESG investment policy, while 43% do not and have no plans to adopt one. Given their smaller size and leaner teams, some family offices consider ESG investing as a luxury, noting the scale and resources needed to implement it fully.
However, the APAC family offices that incorporate ESG considerations employ diverse strategies. These include thematic investing in specific ESG-oriented sectors (33%), integrating ESG factors into their analysis and valuation of companies (33%), selecting companies with strong ESG performance (11%), and excluding negatively impactful companies (6%). Beyond portfolio investing, family offices are also creating value and societal impact through impact investing and philanthropy.
An interesting path emerging for these family offices to balance their financial needs with ESG considerations is investing in startups and venture capital. Startups, particularly those in impact-focused sectors like clean technology, healthtech, and edtech, often inherently align with ESG goals due to their focus on innovative, sustainable solutions. Venture capital investments allow family offices to support these early-stage companies, potentially achieving the delicate balance of significant financial returns and positive ESG impacts.
Moreover, many startups incorporate ESG principles at their core, making them ideal investment targets for family offices seeking to apply ESG considerations. At Accelerating Asia, for example, every startup in the portfolio targets at least one sustainable development goal of the United Nations, with many more addressing two or more. Joining Accelerating Asia as a limited partner gives family offices an opportunity to advance the social good while also driving their organization's financial growth.
Intergenerational investment shifts toward digital
The family office industry in APAC, mainly composed of first or second-generation wealth, exhibits a shifting investment pattern as wealth transitions to younger generations. Compared to the West, where wealth is largely inherited and spread across multiple generations, APAC's self-made wealth primarily focuses on wealth creation and investment in familiar areas.
As wealth passes to younger generations, these investment patterns are changing. There's a growing preference for private debt, an asset class relatively new to these investors. Interest in traditional assets like real estate seems to be waning.
The next generation may have a greater interest in innovative startups and technology due to their digital nativity and consciousness about social impact. Notably, younger generations are increasingly inclined towards investments in cutting-edge technologies and disruptive sectors like healthtech, biotech, electric vehicles, artificial intelligence, and digital assets.
As a market agnostic venture capital firm, Accelerating Asia has already invested in many of these sectors and is eyeing investments in others. In this way, Accelerating Asia is often a bridge for family offices who want to get involved in startups and technology but do not feel comfortable vetting startups in unfamiliar markets.
This fact reflects the generational divide in investment preferences and strategies. While the older generation generally prefers leveraging their expertise and experience, the younger generation appears more open to outsourcing investment decisions to professional management firms.
Accelerating Asia caters to this growing preference by enabling family offices to be as hands-on or as hands-off as they would like. Some family offices use Accelerating Asia as a source of thesis-aligned deal flow for the family office and wait for these referrals to come in. Other family offices actively participate in startup mentorship and even the selection process.
The road ahead
Looking ahead, family offices in APAC are evolving in their investment strategies. They're eyeing alternative assets, particularly early-stage startups, as viable options for diversification and return. ESG considerations are gaining momentum, providing a new lens through which investment decisions are made.
As wealth transitions to the digitally-native younger generations, a shift towards innovative, digital, and disruptive sectors is expected. These transformations suggest a promising future for APAC family offices, characterized by diversified, sustainable, and tech-centered investments.
Accelerating Asia invests in startups with scalable technology solutions and revenue generating business models that combine purpose with profit.
In making an investment decision, investors must rely on their own examination of startups and the terms of the investment including the merits and risks involved. Prospective investors should not construe this content as legal, tax, investment, financial or accounting advice.