Asian family offices tighten purse strings amid virus crisis

Photo by Andrea Natali on Unsplash

In September, as Hong Kong’s streets filled with tear gas and protesters, third-generation heir Tony Yeung remained confident the city’s economy would bounce back from the turmoil. He regularly flew between Asia and Europe helping his family office and partners hunt for deals.

Now, deep in the midst of the economic havoc wrought by the coronavirus outbreak, Yeung is one of many Asian family office executives worried that a rapid recovery is unlikely. As some uber-rich U.S. and European clans rush to buy assets at bargain prices, their Eastern peers are generally more cautious — managing their holdings and hoarding cash in preparation for worse to come.

“We have taken the most conservative approach to monitor our portfolio first and to be on the defensive side overall,” said Yeung, whose wealth comes from property developer Peterson Group, where he is chief executive officer. “As a family it’s OK to miss an opportunity, it’s less OK to lose money.”

The reluctance among some of Asia’s wealthiest families to rush for deals is potentially a warning sign for the global economy. While many Western family offices managing ‘old money’ resemble regular investment firms, Asian wealth tends to be newer, with the original businesses still at the heart of the operation. This gives them a front-line view of the real economy — from hotels and retailing to manufacturing and shipping — suggesting forecasts of a rapid rebound after a short, sharp recession may not pan out.

Long View

Family offices manage the wealth of either a single super-rich clan or a group of wealthy families. Globally, there were more than 7,300 as of mid-2019 managing assets of $5.9 trillion, according to Campden Research. While their structures and natures vary, they have a universal goal to protect and grow wealth, helping them to adopt a long-term view during periods of market turmoil.

Joseph Poon, group head at Singapore’s DBS Private Bank, said many of his Asian family office clients initially deployed the same playbook used during the 2003 SARS outbreak, which saw an economic rebound within months. But as the coronavirus spread into a global pandemic and financial safe havens evaporated, those with extensive operating businesses quickly realized this would be a different beast.

“A lot are looking at their businesses as a canary in the mineshaft as to what’s going to happen in the marketplace,” he said. “Overall they’re cautious; they believe there’s more downside and that we’re seeing a dead-cat bounce, and they’re raising cash and dry powder.”

The chief concern of many is the global wave of unemployment and its deleterious effect on consumer spending. In the U.S. alone, more than 26.5 million people have filed for unemployment benefits over the past five weeks.

Change of Plans

AJ Capital Asset Management, which manages money for the Jhunjhunwala family, had originally planned to offer loans to small and medium-sized businesses in places like India. But Anubhav Gupta, who looks after private investments at the Singapore-based firm, said many of those plans have now been deferred as lockdowns savage economies.

Instead, it’s become more wary on deals. And when it does lend money, the liquidity crunch means it will be to larger companies with assets that can be used as collateral.

“We’ve been seeing an opportunity to lend to borrowers higher up the credit curve on a secured basis with similar dollar rates of return to what we had estimated we would achieve lending to SMEs,” Gupta said.

To be sure, the hesitation to strike deals doesn’t mean Asian family offices and their operating businesses are set to fail en masse. Most have relatively low levels of debt after being burned over the past two decades by the Asian financial crisis, SARS and the global financial crisis.

Right People Renewable Energy founder Robin Pho, who runs his own family office and sits on the board of Family Business Network Asia, said some of the wealthy families he’s spoken to have sold assets to build up cash buffers.

“Many are definitely tightening their purse-strings and focusing inwards,” he said. “Deal flow will be lessened now because everyone is being cautious and wants to wait and see.”

And the bearishness isn’t universal. Some family offices had long held the view that public and private markets were overvalued and held cash to prepare for a correction — just not one this ferocious. A smaller group have operating businesses that remain relatively unharmed, putting them in prime position to invest.

For the Tolaram family, who derive much of their wealth from supplying basics like noodles and cereals, business has remained relatively stable. Manish Tibrewal, CEO of Maitri Asset Management, which got seed-funding from the Tolarams, says both organizations are open to making new investments, albeit at discounted valuations.

Looking for Value

And with governments around the world unleashing trillions of dollars to keep businesses and workers afloat, many companies have so far managed to avoid seeking fresh capital at fire-sale prices.

“We’re long-term investors and we don’t know how long this will last, but it definitely can’t go forever,” said Tibrewal. “But we haven’t seen that many meaningful deals because both sides would be mindful of the valuation, so many would rather hold back and ride out this volatility.”

Others still are simply keen to invest, especially family offices in China where the economy is reopening. For some, the crisis represents a high-stakes case of fear of missing out.

“Just because the market is uncertain, it doesn’t mean the rich are sitting back,” said Nick Xiao, CEO of Hywin International, the Hong Kong arm of Hywin Wealth. “The wealthy are more proactive than ever, constantly monitoring, thinking and debating how to position their wealth. They don’t want to miss the rebound like in 2008.”

Even so, Peterson’s Yeung says investors must be careful before striking huge deals in such uncertain times. As collapsing oil prices and fast-changing government lock-downs have shown, the cost of a wrong bet can be catastrophic.

“If families are aggressive and say ‘this is the opportunity of a lifetime and I can triple my worth’ then they have to truly understand the risks they’re taking,” he said. “The true economic issues and impacts haven’t surfaced yet and will gradually do so in the next couple of months, and that’s when we’ll see if government bailout policies are effective.”

Bloomberg

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.