Family Offices Get Opportunistic Amid Market Chaos
Distressed hospitality, digital assets, lithium, and even Ukrainian tech companies are commanding the attention of these allocators.
For some family offices, the more niche an investment is, the better suited it will be for their portfolio.
To that end, some of the largest family offices, including Pennington Partners and GRC Investment Group, are looking to put capital to work in warehouses, U.K. stocks, distressed hospitality real estate, and digital assets.
Sumit Handa, managing director at Pennington Partners, summed up the driving force behind today’s markets.
“It’s like Adam Smith’s invisible hand has been replaced by Jay Powell’s bulging fist,” Handa said, speaking at the recent Fordham Family Office Summit held by Ironhold Capital at the New York campus of the university. Family offices, unlike most pension funds and even endowments, have the most flexibility in their investment strategies.
The Pennington executive expects the Federal Reserve to continue raising rates, while the U.S. housing market deteriorates, weakening consumers. “A lot of businesses are going to go away,” Handa said, which will cut into the price of credit and structured credit and make securities of healthy companies attractively priced investments.
Kamil Homsi, CEO and founder of Dubai-based, single-family office GRC, is bullish on some United States investments given those market conditions. Homsi believes that despite pressures on the economy, the country’s real assets are set up to outperform. GRC has invested in warehouses in the mid-Atlantic region, data centers in the northern states, and life sciences centers across the country.
Homsi said that he is “fascinated” by liquid hydrogen and lithium as potential investments right now. The two are necessary for the production and use of electric vehicles, which are expected to play a key role in the energy transition.
But it’s in Europe that Handa sees a nascent opportunity right now. “There’s chaos in Europe,” he said, pointing to the continent’s energy crisis that was sparked by the Russia-Ukraine war. “There are a lot of babies being thrown out with the bath water. But there are a lot of opportunities.”
For instance, Handa noted, U.K. equities are starting to become interesting again. This contrarian view comes just weeks after the U.K.’s liability-driven investment crisis, which drove some investors out of the stock market.
And family office investors are willing to look to invest in distressed regions — both JD Paramount’s Derek Li and Granby Capital Management’s Scott Beechert said they believed that some interesting investments could emerge in Ukraine, particularly in the country’s historically strong technology sector, once the conflict with Russia subsides.
JD Paramount, a multi-family office based in New York, has long been active in the biotech and semiconductor industries, each of which has faced challenges in 2022’s market.
“We still think the semiconductor space will do well,” said Li, a managing director at the firm, who also spoke at the Summit. This is despite an ongoing semiconductor chip shortage, which has persisted since the pandemic began due to increased demand. “Semiconductor startups are some of the most severely undervalued assets, especially with managing overhead.”
Unlike their endowment, foundation, and public pension peers, family offices have investment goals that are highly specific to every client. For instance, Granby Capital Management is ultra-focused on capital preservation, holding roughly 70 percent of its assets in cash, according to Beechert, who is chief operating officer and general counsel at Granby.
While the Federal Reserve’s interest rate hikes have been kind to the liquid part of the organization’s portfolio, Beechert is excited by longer term investment opportunities, particularly in the distressed hospitality real estate sector.
“There were a lot of properties on the brink before the pandemic, and some got pushed over the edge,” Beechert told the audience at Fordham. As interest in travel has bounced back post-pandemic, so too has the need for hotels. In other words, demand for some of the once-distressed assets has risen, a boon for these investors.
The Witter Family Office, meanwhile, is focused on preserving daily liquidity. CIO Sherry Witter said the organization’s “bread and butter” is trading. However, she has long been bullish on digital assets, having seeded more than 100 crypto-related projects. The 2022 market rout has not been kind to cryptocurrencies, with valuations falling significantly over the past ten months. However, Witter is bullish on the long term.
“I’m still a long-term believer in crypto technology,” Witter said. “It’s a good time to deploy capital selectively in crypto as a long-term investor.”