Asia’s family offices pursue alternatives, artificial intelligence | Alternatives

The changing global investment landscape has prompted family offices worldwide to reassess their strategies, and Asia is at the forefront of this transformation, according to findings from JP Morgan’s Global Family Office report, which surveyed 190 family offices with an average net worth of $1.4 billion.

“Navigating ever-changing markets is nothing new for family offices,” Natacha Minniti, international head of institutional wealth management at JP Morgan Private Bank, told AsianInvestor.

From the post-pandemic market recovery to ongoing geopolitical headwinds and rapidly accelerating artificial intelligence (AI) enhancements, charting the path ahead for family offices is rarely smooth sailing, she said.

Natacha Minniti
JP Morgan Private Bank

“The results revealed that alternatives really are the number one player in town for family offices today,” Minniti said.

Family offices globally, including those in Asia, are embracing alternative assets as a means of diversification.

“Globally, family offices are diversifying their investment portfolios, with nearly 80% working with external investment advisors. This represents a multi-year shift that we are seeing among this group,” Minniti explained.

“Notably, the average portfolio currently has a 45% allocation to alternative assets, targeting an 11% return. Private equity is the most commonly held asset class, at 86%.”

Asia’s family offices, however, are taking a distinct approach.

“Our survey showed that 72% of international (ex US) survey respondents tend to set a longer-term return. This shows they have a higher risk tolerance and the ability to take on liquidity risk, versus their global peers,” said Minniti.

PRIVATE INTEREST

Albert Yang, Asia head of alternative investments at JP Morgan Private Bank, has observed a rising demand for global private equity and venture capital investments from Asia-based family offices throughout the region.

Albert Yang
JP Morgan Private Bank

“With continued uncertainty around global growth and the interest rate environment as well as narrowly focused public equity markets — mostly AI-driven — more family offices are looking at private markets for opportunities,” Yang told AsianInvestor.  

“Since late 2020, we have seen our private investment capital-raising activity increase threefold in Asia.”

Diversified buyout, technology, and AI are key sectors that have experienced strong investment demand in Asia, according to Yang.

“Many experienced private equity buyout funds are able to seize opportunities in a more challenging economic environment to acquire traditional industry businesses at a reasonable valuation,” he said.

Specifically, Japanese, Southeast Asian and Australasian buyouts are attracting the most attention from these investors. 

“Select commercial real estate investments in Japan and Australia are also a popular area of focus,” said Yang.

A NEW ERA

Asia’s thriving tech scene is attracting significant attention from family offices, both on a regional and global scale, said Minniti.

“In my conversations with the region’s most established family offices, it’s clear we’re on the precipice of a new AI-driven era, with Asia being a rich hunting ground for investment opportunities,” she said.

However, she emphasised the importance of cybersecurity, noting that nearly a quarter of family offices surveyed reported exposure to a cybersecurity breach or financial fraud, yet only one in five noted they have cybersecurity measures in place.

“With that in mind, 40% of family offices reported that cybersecurity is a top gap for improvement.”

ASIA GROWTH

To navigate the complexities of Asian markets, family offices are employing a balanced approach, said Yang.

“There are many solutions to manage the liquidity of their investment portfolios. The barbell approach has become more common with family offices, where allocators can choose from semi-liquid private funds [like infrastructure, private credit, real estate, and triple net lease] to provide recurring income distribution and reasonable redemption features to help fund their longer term traditional private equity investments,” he said.

“The combined portfolio should be able to help generate a mid-teens internal rate of return (IRR) going forward, regardless of the interest rate environment,” he added.

“Working closely with family offices in Asia, our focus has been to provide diversified private investment solutions that can sustain various market cycles.”

When you think about some of the most exciting structural growth opportunities today, India and Japan present compelling opportunities, said Minniti.

“Family offices in Asia have indicated their likelihood to increase asset allocations in these markets. We think this is even set to grow,” she said.  

“Looking at Japan, the improved outlook for Japan appears to be based on two key factors: an exit from long-running deflation, or reflation; and further support from corporate governance reforms. And we think these two factors are sustainable.”