Rich Asian families tend to be more aggressive, hands-on investors than their Western counterparts
HONG KONG — Asia’s moneyed families are rising in the ranks of the world’s richest people. And as their wealth grows, many are showing an investment style typically different from that of rich Western families, say some investment professionals who work closely with such families.
To help manage their investments, increasing numbers of the richest families around the world are turning to so-called family offices, private firms that manage everything from investments to tax and estate planning and philanthropy. But industry reports and sources who work closely with families who invest through such firms suggest that Asian family offices typically use more aggressive investment strategies than Western family offices, and want more direct involvement in the businesses they invest in.
A recent report from UBS Group AG and Campden Wealth points to data highlighting differences. According to the report, Asia-Pacific family offices in 2016 have allocated 38% of their investment portfolios to direct venture-capital and private-equity deals, co-investing and real estate direct investment. North American family offices, by contrast, have allocated 27% to those investments, the report says.
Interviews with family-office managers also suggest such differences. While private-equity funds are often a popular choice among the global wealthy, for example, Asian families tend to invest in them less because they are limited to a passive role, says Philippe Legrand, chief executive of London & Capital Asia Ltd., a Hong Kong-based family office that serves multiple families. Asia-Pacific family offices, on average, invested just 3% of their portfolio in private-equity funds in 2016, according to the UBS and Campden Wealth report, compared with 8% by North American family offices.
The growth of Asian family offices has increased since the financial crisis. Some, rather than place money with global fund managers, make direct investments in companies and buy and sell stocks, including short selling stocks. Selling short is a strategy in which an investor sells borrowed shares, hoping the company’s stock falls, creating a profit when the shares are paid back at a reduced replacement cost.
Asian family offices tend to use more aggressive investment strategies than their U.S. counterparts, say bankers and others who advise family offices, because many of the families are first-generation entrepreneurs and have great appetite for risk. They are often unwilling to pursue single-digit returns after developing the growth and value of their own businesses at a faster clip.
Industry participants say hundreds of family offices have sprung up in Asia in recent years. The value of assets held by high-net-worth individuals in the Asia-Pacific region, meanwhile, grew 10% in 2015 to $17.4 trillion, a higher rate of growth than in any other region in the world, according to a report by Capgemini, the global consulting and computer-services company based in France. Asia-Pacific wealth is projected to pass $42 trillion by 2025, the report says.
Mr. Legrand notes several ways in which Asia-Pacific families are more hands-on than their Western counterparts. They are increasingly doing direct investments, which allow family offices to take a stake in a company or purchase commercial real estate outright. Asian families are more interested in spending their own money to make investments that may overlap with their own business. Sometimes, they also want to have a say in how the company is run, says Mr. Legrand.
Enrico Mattoli, head of Global Family Office, Greater China at UBS Wealth Management, says families he works with are directly investing in startups where they see fast growth. Last year, he says, a group of Asia-Pacific family-office clients and ultra-high-net-worth clients made an investment in Impossible Foods Inc., which creates plant-based foods. UBS led a $108 million funding round for the company that included Hong Kong tycoon Li Ka-shing.
Other Asian family offices have focused on real estate and education. Mr. Legrand says he put together a deal last year in which a group of family offices bought kindergartens in Shanghai. He declines to specify the size of the investment, but says such deals include investments of $10 million to $50 million. He says some families are currently looking at commercial real estate deals abroad to diversify their holdings and find higher yields.
Ms. Steinberg is a Wall Street Journal reporter in Hong Kong. She can be reached at firstname.lastname@example.org.