Wednesday, 19 June 2024

Sustainability-focused family offices grow rapidly in Asia

5 min read

By Richard Hartung

More family offices have a sustainability or ESG mandate, and sustainability is a larger consideration than in the past.

  • More than half of the family office portfolios in Asia Pacific have sustainable investments
  • Eighty five percent of family offices in Hong Kong expect to increase their allocation to ESG or impact investing
  • Family offices invest sustainably for the positive impact on society and because it is the right thing to do for the world

The number of ultra-high net worth individuals (UHNWI) in Asia Pacific with assets of $50 million or more will increase from about 40,000 in 2018 to 58,000 in 2023, Credit Suisse estimates. And along with that wealth, the number of family offices (FOs) has grown. Approximately 200 family offices were set up in 2020 alone, according to recruitment firm Agreus Group.

Singapore and Hong Kong have been at the forefront of the race for family offices due in large part to regulatory environments that support family offices. Indeed, Singapore Economic Development Board  data shows that Singapore saw its number of family offices grow fivefold from 2017 to 2019, and there are currently about 400. This surge encompasses new Asian family offices as well as satellite offices of family offices from Europe and North America.

The rise in Singapore is due to several factors, the Singapore Wealth Management Institute (WMI) explained. Singapore has a nurturing and forward-looking regulatory financing framework alongside robust political stability and a business-friendly environment. It also has a vibrant local venture ecosystem, along with a world-class finance, data, legal, tax and governance support functions. Established networks and partnerships bring together the best of global capital and regional opportunities. Finally, it has wide-ranging policies to attract global talent and cultivate the local workforce with skillsets and mindsets to meet the demands of wealthy individuals.

A shift to sustainability-focused investing

For centuries, the wealthy have turned to private bankers to manage their wealth. In recent decades, however, they have begun to set up FOs, which enable them to ensure confidentiality, in-source management of their funds and manage assets more easily across multiple jurisdictions.   

Family offices have more often served as guardians of family wealth and a way to generate income. Asset allocation has often reflected traditional patterns, with the Union Bank of Switzerland (UBS) Global Family Office Report 2021 showing about a third of portfolios allocated to equities, 15% to fixed income, 12% to real estate and 10% to cash. Private equity has increased, however, rising from 16% in 2019 to 21% in 2021.

More recently there has been a shift to investments that meet sustainability or environmental, social and governance (ESG) criteria. In Hong Kong, for instance, a recent survey by Family Office Association Hong Kong (FOAHK) showed that 85% of family offices expect to increase their allocation to ESG or impact investing. “They are already at the forefront of ESG and impact investing,” FOAHK chairman Chi Man Kwan opined, and there is momentum towards meaningful allocations to make a difference for the future.

In Asia, UBS found, 53% of family office portfolios have sustainable investments. 31% have an ESG integration strategy with sustainability objectives, 25% use an exclusion-based strategy and the rest use other criteria to select ESG investments.

In Singapore, according to the WMI, the growth and intergenerational transfer of wealth within Asia in the last decade also saw the rise of Asian families with the capital and desire to make a positive impact. That desire and the expansion of sustainable investing offerings as well as a massive inter-generational transfer of wealth and growing demands by stakeholders to align with ESG objectives have led to major shifts in investing philosophies for family office professionals and advisers. Family office clients do not just want to follow the way that the financial market has chosen winners, said WMI lead faculty professor Satyajit Bose, “They want to gather information, understand what is aligned with their views and their purpose and what they feel is right for the future they want, and invest in that way.” “Our research will help industry players to adopt global best practices and embed ESG considerations into their decision-making,” WMI CEO Foo Mee Har also noted, and WMI’s Global-Asia Family Office Summit “will galvanise the family office community towards causes such as sustainability and impact investing.

Reasons for the shift

Globally, according to UBS, most FOs that invest sustainably do so for the positive impact on society and because it is the right thing to do for the world.

In Asia, families are more specifically focused on climate change. Indeed, a survey by asset management firm Robeco showed that the pace at which Asian investors adopt a climate change focus is almost double the rate of their European counterparts, with 70% saying climate change is key to their policies. “More Asia Pacific investors are committed to net zero, decarbonisation, divesting away from oil and gas and carbon-intensive assets, and working on climate change as the central element of enforcement policies,” said Robeco climate change strategist Lucian Peppelenbos. Forty percent of Asian investors are investing in sustainability-related themes including renewable energy and green technology as a high or core priority. Protecting biodiversity, halting deforestation, reducing global waste and achieving net zero are the most crucial environmental engagement themes.

An added benefit, according to UBS, is that 50% of FOs in Asia say sustainable investments will outperform the overall market in the next five years.

The rise of the sustainability-focused family office

While a majority of family offices in Asia have made sustainability and ESG a part of their investing, a few have even gone so far as to make it their primary focus.

Singapore-based Rumah Group, for example, believes it is passionate about sustainable investments, communities and the environment. While exclusion has been part of its investment policy so far, it has increasingly adopted an inclusionary approach and looks to evolve towards a portfolio that embraces climate resilience, social impact and business ethics.

Hong Kong-based Tsangs Group claims it seeks out positive impact investments that reflect its values of innovation, sustainability and togetherness. And Singapore-based Maitri Asset Management (Maitri) says it is led by a strong set of values and responsible investing principles with a focus on ESG. It adopts a proprietary two-tier approach comprised of a negative screen and an ESG integration investment framework.

An increasing focus on sustainability

The increasing focus on sustainability by the wealthy, the impacts of climate change on portfolios as well as lives and the desire for a better future look set to provide the impetus for an even greater focus on sustainability by family offices. FOs will need to build their capabilities further to take advantage of that shift.          

“There is a keen interest by families in understanding the ESG space,” said Manish Tibrewal, CEO at Maitri Asset Management, a multi-family office which also provides outsourced family office services. “While it is “nice to have” for older generations, the next-gen is pretty focused on creating an impact through their wealth and ESG is sine qua non for them.” 

In the current situation, Tibrewal said, there is an even greater “function of urgency” around sustainable investments. “The current Ukraine crisis has brought attention on energy security to the forefront and investors realise that renewable energy will play a major role in securing the energy needs of individual countries.” Moreover, “environmentally sustainable investments are not just for the betterment of the planet but also have a good financial investment case, which is well understood by many family offices.”

When Maitri started setting up the family office, Maitri head of ESG research Edris Boey said, the fact that its biggest beneficiary is a charitable foundation laid the foundation for the team to make a measurable impact on society and the environment through the work they do in wealth management. The team started by focusing on internal education when they developed the firm’s responsible investment approach and they also worked closely with the investment team, senior management and the board. They then had external conversations with peers to benchmark industry definitions and with ESG or climate data providers to assess the data points available.

A lot of the impact FOs have through ESG-related investing depends on the awareness level of investors, Tibrewal said. “Some view it as a force for good and think of it as a moral responsibility. For others, it is purely a financial play.” Whichever way family offices get interested, she said, it serves a means to the end goal of ensuring a sustainable environment and society.

Maitri’s focus on ESG has created a “big competitive advantage,” said Tibrewal. “When we educate people that their wealth has a purpose and it can do good for the environment and society while generating returns for the family, they actually appreciate and identify with the philosophy. It also acts as a unique selling point for us.” 

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