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Asia family offices: Unfamiliar territory

The industrial backgrounds of family offices represent a strategic edge but also a potential hinderance to portfolio diversification. The same goes for principal-led governance structures

As Asia’s family offices increasingly shift trust and responsibility to professional managers and younger family members, private equity has helped them branch out beyond their core business experience. But this effect has its limits.

According to the Association of Family Offices in Asia (AFO), family offices in the region allocated 21% to private equity in 2020 versus a range around 10-15% only a few years ago, eroding the longstanding dominance of real estate to 24%. Sectoral diversification, however, has not developed as quickly. This is a key vulnerability given directs represent 39% of the average portfolio.

“The next generations are getting more decision-making power and they’re more active than the patriarchs in technology, new-economy trends and areas like impact and ESG that are driven by a lot of PR and media attention. But they are still staying fairly aligned with their core family businesses,” explains Eva Law, founder of AFO.

“While we’re seeing higher allocations to private equity, which helps diversify family office portfolios, most of the capital is going into minority investments. Direct deals continue to be more about familiar projects and running businesses, rather than managing a portfolio.”

The Family Office Association of Hong Kong (FOAHK) concurs with this assessment. More than half of family office private equity investments in its purview are thought to target technology. Directs by contrast continue to reflect the investors’ traditional focus industries – most typically real estate and manufacturing – for logical reasons around sourcing deals, identifying winners, and adding value.

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