Four things APAC family offices want from their GPs
Fund managers must consider alignment and transparency, among other issues, when attempting to tap into family investor capital.
The growth of Asia-Pacific's high-net-worth population is outpacing the global average. According to Knight Frank's Wealth Report, APAC's billionaire population will grow at a rate of 36. 7 percent during the next five years, compared with 33.7 percent globally- by 2026, more than one-third of the world's billionaires will be from the region.
As the number of high-net-worth investors in Asia increase, more family offices are emerging to help manage, retain and increase their wealth. Private equity's track record of outperforming the public markets makes it an attractive choice.
According to the Asia-Pacific Family Office Report 2022, published by
family office organisation Campden Wealth and Raffles Family Office, 84 percent of families share a growing interest in private equity, while 57 percent are planning to increase their allocations to PE funds.
"It's this desire to embrace the greater professionalisation," Audrey The, managing director at Cambridge Associates, tells Private Equity International. "What that means is to have a professional governance structure, and the evaluation from professional investment advisers to help with investing according to the objectives of these families."
Due to the macroeconomic friction impacting public and private markets alike, picking the right GPs is crucial. As Campden Wealth's report shows, families still have a sizeable appetite for alternatives - however, managers shouldn't become complacent. Should they wish to fully tap families' commitments, they need to note four key things such investors look for.
1. Aligned objectives
While GPs' reputation, size and track record continue to be overarching criteria, family investors are also seeking managers that share their objectives and values. Whether GPs can build a good and lasting relationship with these investors depends on their ability to echo their investment focus.
"Every single family office is different; each one is a unique conversation," says Vincent Ng, a partner at Atlantic-Pacific Capital. "I would say having a strategic perspective that aligns with their background and with the potential for co-operating with their core business operations has generally been a useful theme to begin discussions."
Some families look for investments where they may contribute value: by making investments in the same sector where the family made its money, they can utilise their network or management expertise to achieve better returns.
"For example, if it's a family linked to the consumer sector, they would often have strong motivations to get involved in consumer-type funds and opportunities, as they can add meaningful strategic value, such as utilising their supply chain connections or distribution channels," Ng adds.
According to Campden's report, 10 percent of families currently invest directly into PE, compared with 7 percent that invest through funds. Thirty nine percent of families are planning to increase their stakes in direct investments in the coming year.
Growth directs remain the most popular category, with 54 percent of APAC families investing, while venture directs attract 49 percent of exposure.
Investors have varying appetites and goals; some prefer consistent growth, while others seek disruptive ventures. GPs will have to dig deeper to understand families' investment tastes and goals before looking for a transaction.
"For us, consistency is the primary goal, and we want to look for managers that fit into our investment framework," says Jiahao He, chief investment officer of multifamily office 3 Capital Partners. As alternatives are longer term commitments compared with public equities, family offices are more likely to entrust their money with GPs that can cater to their goals.
APAC family offices are known to be discreet. While G Ps are trying to find out more about them, families are also trying to understand managers better.
"Direct access to G Ps is definitely one of the barriers for most family offices," says He. "Transparency and communication with the GPs [is] very important too."
Private markets are witnessing longer fundraising periods, which means investors are making use of the extra time to review their potential managers. "You've got investors who are now going to have more time to get to know the managers and do their homework and due diligence to actually ascertain if these are going to be the right investments and right partners for them," says The.
Providing transparency to the GP's team allows the investor to better assess how the GP-LP relationship can benefit their family. "You need to understand the GP's culture, how their team [interacts], and whether their past track record can be replicated going forward," He adds. After all, family investors are looking for continual partnerships, rather than just a transaction.
The need to diversify amid macroeconomic hiccups is a major driver of families' participation in the private markets. GPs that aim for a balanced and diverse portfolio may therefore seem more appealing to investors.
Although family investors boast expertise within their core businesses, their deep involvement in one sector inevitably creates a concentration of risk within their portfolios. That is why they need GPs that can curate an adequately diversified investment for them, maximising returns while mitigating risks.
"I think it's a balance between seeking diversification across geographies
[and] sectors, and balancing that with the overarching desire [of families] to lean into certain strategic focus areas," says The.
The long-term preservation and growth of a family's wealth requires a diverse portfolio. Campden's report shows that APAC family offices are on the lookout for new investment opportunities and, compared with their global peers, are more focused on diversifying their portfolios.
4. Co-investment opportunities
Some family investors are embracing co-investment opportunities, especially in situations where they can team up with companies whose resources they can share, thus making use of each other's strengths. According to Ng, some families have been interested in smaller, mid-market funds so "they can be part of the ecosystem, which can help generate potential co-investment opportunities".
Campden's report shows that 32 percent of APAC families have co-investments in their portfolios, although the data includes family offices that invest alongside other family offices. Whether it is committing alongside a GP or another family, co-investments allow families to "obtain a larger share of a desirable investment with less due diligence", the report notes.
Katrina Lau - 30 March 2023