A recent survey found that Asian family offices are adopting dynamic financial tactics to stay ahead in the current global economic climate, from changing real estate investment patterns to a cautious stance toward China.
While Asian family offices maintain a significantly higher allocation to real assets, particularly real estate, compared to their global counterparts, a shift is taking place, according to the KKR 2023 Family Capital Survey.
Henry McVey,
KKR
“Historically, many Asian family offices have concentrated a larger portion of their net assets in real estate than other public and private investments. However, we believe this trend is changing as financial markets in Asia mature,” Henry McVey, Partner, Head of Global Macro, Balance Sheet & Risk and CIO of KKR Balance Sheet, told AsianInvestor.
According to the survey, real estate allocations in Asia account for 21% of total assets under management (AUM), significantly higher than the 11-12% in other regions.
Now many CIOs overseeing family offices in Asia have become more comfortable with private market investments, including private equity and private debt, he said.
“The recent significant increase in global interest rates – which we believe will remain higher for much longer this cycle – is also an important factor in the revaluation of both residential and commercial real estate holdings,” McVey said.
PRIVATE CREDIT GROWS, INFRA STORES
There is growing interest in personal credit in Asia and family office CIOs see it as an attractive asset class given the disruption caused by the retreat of traditional banks and the rise in the cost of capital, McVey said.
“Our work suggests that private credit is maturing as an investment asset class in the region, and many global investors are therefore pursuing private credit opportunities in Asia to find what they believe offers better pricing and terms – and often less competition by established players,” he said.
While interest in infrastructure has increased globally over the past year, Asian family offices have historically allocated less than 1% of their AUM to infrastructure, one of the lowest levels among the regions surveyed.
However, McVey believes the intention to increase allocations to infrastructure as an asset class is a long-term trend given its return profile, inflation protection and diversification benefits.
“Infrastructure has also emerged as a compelling opportunity to invest in key themes such as data intensity, logistics and renewable energy,” he said.
“In our view, the long-term investment horizon of infrastructure, coupled with the composite nature of the asset class, certainly aligns well with family office objectives. “
CHINA BEWARE
KKR's survey also notes a significant shift in asset allocation in Asia away from China/Hong Kong towards markets such as India and Japan, with direct China exposure expected to fall to 2-5% from 9-11% previously.
Most CIOs have exposure to China through existing fund investments with a 5- to 7-year investment horizon, McVey said.
“They are maintaining these investments but pausing new investments as geopolitical tensions and uncertainty have increased,” he said.
At the same time, CIOs are largely reducing their exposure to Chinese public stocks.
“Overall, however, CIOs are not abandoning China, and overall many family offices remain optimistic about investment opportunities in Asia.”
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