Where Asian Family Offices Want to Invest Next
Private debt and hedge funds are enticing to family office investors in the Asia-Pacific region.
Despite growing concerns about inflation and a potential recession, family offices in the Asia-Pacific region still have money to put to work — and they’re looking to do it in two key asset classes.
New data from Preqin, expected to be released Tuesday, shows that a growing number of family offices in Asia are interested in adding private debt and hedge funds to their portfolios.
According to Harsha Narayan, a Preqin senior manager, these investors may be less constrained by the denominator effect than some of their institutional investment peers stateside — which means that there could be more opportunities for experienced managers to tap.
“I don’t think the denominator effect is as much in play here,” Narayan said, noting that the liquidity available to put to work is heavily dependent on a family’s needs, rather than on target allocations, as is the case with other institutions.
“The broad takeaway is that alternatives are still key, but [investors] have to be nimble and flexible in the way they’re investing in these classes,” she added.
The data provider surveyed more than 50 single-family and multi-family offices in APAC, in addition to conducting interviews with industry experts and practitioners. The family office sector in the Asia-Pacific region has been growing, with the number of investors in the region with more than $30 million in net worth jumping by 7.2 percent year-over-year. The region is expected to see a 33 percent increase in family offices by 2026.
Narayan said that in some respects, family offices in the Asia-Pacific region look different from their North American and European peers. The wealth is typically still in the hands of the first or second generation, rather than further along down the family tree. This means that the nascent family offices are also more likely to be less diversified and may opt to invest in sectors that they know well, such as those where they built their family wealth.
But that doesn’t mean that these families aren’t interested in diversifying.
They want to put their money to work in areas that they expect to outperform, including private debt. Per the survey, 64 percent of respondents said they expect the asset class to perform better in the next 12 months — and 63 percent plan to increase their exposure to private debt during the same time period.
But tapping that outperformance won’t come easy to many of these family offices.
“In APAC, private debt is very nascent,” Narayan said. “It’s a really small market. Some of the concerns that family offices talk about is interest in private debt, but they don’t know how to access those opportunities.”
According to the report, these investors are looking for private debt funds or platforms, particularly in special situations and distressed debt strategies, “that can identify high-quality deals, conduct due diligence, and manage investments.”
Hedge funds, too, are looking attractive to APAC family office investors. Roughly 57 percent said they were optimistic about their hedge fund portfolios, while 54 percent said they planned to increase their exposure to the asset class.
“This is really the time that hedge funds can shine,” Narayan said.
In terms of geographic focus for these new investments, APAC families tend to be more open to investing abroad than some of their peers in other regions.
“There’s this concept of home bias, which is quite strong in North America and Europe,” Narayan said. “With APAC, their investments are a lot more diversified geographically. Investing in India is very different than in China. Having that diversity in their portfolio means that they’re exposed to a lot of different tax regimes, cultures, and currency risks.”
For these investors, the country with the best prospects for the next decade appears to be China, which received the highest ranking of all regions from survey respondents. North America was also popular, with 23 percent of respondents ranking the country as having the best opportunities. India ranked third, and Southeast Asia ranked fourth.
“China comes up as number one, despite family offices speaking to us about the concerns they have,” Narayan said. “The long term play is very much still bullish on China.”