Families in Asia shifting towards wealth preservation

By Ravi Samalad |  22-01-20 | 
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About the Author
Ravi Samalad is Assistant Manager - Editoral for Morningstar.in.

In 2019, the primary industries in which families generated their wealth were finance and insurance (21%), manufacturing (16%), and real estate (14%), shows Global Family Office Report 2019.   Global equities and private equity continue to constitute the top asset classes family offices invest in, with portfolio shares of 32% and 19%, respectively.

Direct investments are more attractive than funds

Direct investing offers family offices greater control. It appeals to entrepreneurial families and the next generation who want to be more hands on, and it can also reduce fees. Hence, family offices’ portfolios tend to lean more towards direct investing, with 11% of the average family office portfolio being put towards direct investing and 7.7% towards private equity funds.

Within the average private equity portfolio, 54% of investments are direct, with investors being either active managers (32%) or passive shareholders (22%), and 47% are funds based, with 14% being fund of funds. Technology, real estate, finance and health care were the most popular industries where family offices made direct investments.

Real estate gained popularity

Real estate experienced the most significant lift in allocations, rising 2.1 percentage points to account for 17% of the average family office portfolio. Going forward, family offices aim to further diversify their portfolios, with significant numbers reporting that they are planning to make larger allocations to developing market equities, private equity, and real estate.

A shift towards wealth preservation

Families in Asia shifted towards greater wealth preservation. In 2019, 23% of Asia Pacific based family offices pursued a preservationist investment strategy, up from 7.7% in 2018. This reflects a shift in ideology, as families – many of whom generated their wealth in recent years – are starting to concern themselves more greatly with safeguarding their wealth, rather than focusing on higher risk growth-based investing.

Half of families in Asia Pacific have succession plans

With succession being a particularly challenging topic in parts of Asia, where open conversations about the next generation taking over can still be a taboo subject, it is encouraging to find that as of 2019, about half (49%) of families now have succession plans in place (5% lower than the global average).

Not enough green technology opportunities

Environmentally, emerging markets are harvesting positive shoots of growth for sustainable investing. Roughly one-third (32%) of the family offices within this region report that they are currently investing sustainably. Over half (53%) of respondents reported that there are currently not enough options available for families interested in green technology.

This desire for opportunities is reflected by the fact that: 69% of respondents believe that the majority of family offices will invest sustainably by 2022; 47% attest that climate change is the single greatest threat to the world; and 83% argue that it is untrue that green energy will never surpass fossil fuel.

Artificial intelligence will have a major impact on business

Another area of optimism lies in the technology realm, as practically all family office respondents from the emerging markets – 95%, the highest proportion of any region – believe that artificial intelligence will be the next biggest disruptive force in global business. Additionally, over half (56%) believe that blockchain technology will fundamentally change the way we invest in the future.

The survey covered 360 family offices from around the globe, including India.

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