Family offices actively tapping direct private deals in Asia: Citi

Singapore

CITI is working to close an increasing number of direct private deals to matchmake Asian companies with its family office clients, a senior executive from the bank told The Business Times.

This comes amid rising demand for such investment opportunities among some 300 family offices - most in their first or second generation - that the bank serves from its Singapore and Hong Kong hubs.

The growing diversification into private Asian companies, and specifically Singapore companies, is a focus area for Citi as it builds its regional business, said its Asia head of family office advisory Faye Ong.

"We may be looking at close to 500 family offices in the next 2 to 3 years and possibly even more after," Ong said.

The republic is seeing new highs in this space, with the number of family offices up five-fold between 2017 and 2019. Over 400 have been established here as at 2020, while more than half of global family offices plan to increase asset allocations in the Asia-Pacific over the next five years, data from the Economic Development Board showed.

Ong observed that many family offices set up shop in Singapore to access private deals locally and in the wider region.

"These discussions don't happen if you're not on the ground, constantly in dialogue with other family offices . . . other capital providers."

Asia's direct investment opportunities are "unlike anywhere else" in the world.

Ong said: "Capital has been building in all of the regional economies, but Singapore is that nexus that ties them all together."

Compared with their Western peers, Asia Pacific-based family offices appear to invest a significantly large portion of their portfolio in direct investments to amplify returns, Citi's latest survey found.

Nearly 62 per cent have allocated more than a quarter of their portfolio to this asset class, compared to just 42 per cent in Europe, and 39 per cent in North America.

Overall, the region continues to outperform in private capital raising; its equity and venture capital (PEVC) dry powder reached a high of over US$476 billion last November to account for a quarter of global total.

Dry powder allocated to Asia is set to outpace the US and EMEA (Europe, the Middle East and Africa) this year as investors continue to ramp up allocations towards Asia PEVC, said KPMG in a report.

As Citi's family office advisory unit sits within the larger private capital group, Ong said her team can naturally serve as the "middleman", helping to identify deals that the private bank is already in charge of and connect them directly to its family office clients based in Asia.

The majority of family offices that set up in Singapore come from China, followed by South-east Asia. There has also been keen interest from Europe and the US.

"There have been a lot of big names coming to Singapore . . . they see it as a diversification from their main family office in their (home) countries," said Ong.

Though higher demand for direct private investments serves as one of many growth drivers for Citi, this space is a complex one to navigate.

"For many family offices, this is their first time. It's easy to find deals, but really hard to figure out how to manage the mechanics around them," said Ong.

In chasing higher yields from illiquid direct investments, the trade off is that family offices have to deal with cash-flow woes and less transparent reporting.

Citi's survey found that those with lower assets under management (AUM) are assigning an even bigger chunk of their portfolio to direct investments, compared to those with higher AUMs.

To meet clients' increasingly sophisticated needs, the bank draws on expertise from its global investment lab to provide institutional services, in addition to the traditional private banking services. Analytics are developed, through collaboration across the group, to help family offices make decisions more effectively.

Meanwhile, the ever-growing pursuit for higher returns means that sustainable investing continues to take a backseat for many family offices. The majority of those surveyed by Citi would not consider lower-than-market returns to invest and scale technologies to fight climate change at this time. Only 10 to 12 per cent of respondents have over a quarter of portfolio aligned towards sustainability or ESG (environmental, social and governance) principles.

Over half of family offices with AUMs under US$500 million said ESG alignment is not a consideration or are unsure, pointing to a need for greater engagement, especially with the next generation.

Ong said the bank is in talks with over two thirds of its family office clients in Singapore and Hong Kong to address ESG issues.

"As much as I'd love to say we're the investment advisers trying to connect clients to (ESG) products or specific investments, in a lot of cases, we're just educating these families now."