Asia family offices: a new driver of impact and innovation

Article 15 December 2021 Experience

In recent years, family offices around the world have become increasingly active and sophisticated in their investments into innovative causes. Various interesting trends have emerged, but two are projected to gain prominence in 2022 and beyond.

The first is the prevalence of impact and sustainability innovation. Entrepreneurs are increasingly invested in creating sustainable solutions to everyday problems. As these are capital-intensive, the pace of change is, to some extent, dependent on the size of available capital.

The second is the meteoric rise of “new money” family offices and the latest generations of legacy family offices, which are seeking to make a difference through influential investments in the area of sustainability.

From economic return to impact investment

The increase in popularity of venture capital investing in the mid-80s gave rise to the creation of tax-efficient investment structures, which incorporate entities such as limited-partnership funds. These are structures which, by their design, are intended to have a relatively short life and designed to attain a high internal rate of return (“IRR”). However, a focus on IRR does not fully align with investors who aspire to make a societal impact or achieve a triple bottom line (profit, people and planet).

As a broad observation, the closer one is to the source of capital, the greater the emotional investment, which is why family offices are well-positioned to make a difference. It is observed that family offices are gradually moving away from wealth creation and preservation towards philanthropic causes they champion. The decision to invest directly as a lead in a syndicate or into a focused fund, such as an Environmental Technologies Fund (“ETF”), may depend on the internal infrastructure of the family office and whether it has the capacity to perform due diligence and make direct investments.

Whether a family office chooses to invest directly or through a focused fund, we believe that the capital has the potential to unlock rapid growth in the sector and drive substantial change. Nowhere is this truer than in the developing markets of Southeast Asia, where vast amounts of wealth are concentrated in the hands of a small number of powerful business families. In Indonesia, the largest economy in South-east Asia, private wealth has been responsible for funding and producing some of the largest and most prominent technology businesses, such as Gojek, Tokopedia, and Traveloka. It has played a pivotal role in shaping the country’s technological landscape.

The decade of purpose

“We are emerging from a decade of convenience and entering the decade of purpose,” said Stephane Kurgan, current Venture Partner at Index Ventures and former chief operating officer of King.com. The next decade is when the United States will see the largest transfer of generational wealth in its history. This view is affirmed by industry leaders such as John Seeg, Managing Director and the Global Head of Strategy and Investor Relations for BlackRock Private Equity Partners.

Furthermore, the next generation of investors are more aligned with the existing generation of entrepreneurs. This view is supported by findings of the Global Impact Investing Network’s 2019 report on Sizing the Impact Investing Market, which states that the impact investing sector has doubled in size over the last two years and will only continue to grow. From a private capital perspective, the 2019 Global Family Office Report found that more than 25% of family foundations are actively engaged in sustainable investing, with climate change, clean water, and health issues as predominant concerns. All of these statistics suggest a continual uptick in family office investments in sustainable causes that benefit the world at large.

A background of chaos

During the global financial crisis between 2008-2013, economies across the globe went into freefall and countless individuals lost their jobs and homes. Yet amidst the bleakness, we witnessed the emergence of fintech, which thrived on the disruption to the status quo, the availability of highly skilled individuals, and the glaring deficiencies in the banking and financial services sectors. Twelve years on, fintech startups now dominate the financial services landscape, many of which have become household names: Ant, Revolut, Wise, Raisin, Klarna, Grab Pay, and Starling Bank, to name a few. These companies have revolutionised the traditional banking sector, particularly in developing and under-banked markets like Indonesia and Myanmar, and reshaped the ways in which business is conducted.

It is therefore reasonable to believe that the chaos of the ongoing COVID-19 pandemic will effect a similar, if not greater level of disruption across various sectors. However, in comparison to 2008, the innovations brought to market from this year onward are much more likely to have impact and sustainability woven into its core. Furthermore, the total value of investment offered to fintech companies rose exponentially from just under US$1 billion in 2008 to an estimated US$35 billion in 2018, as demonstrated by fintech company Kantox’s research. Impact-driven entrepreneurs are projected to receive an unprecedented amount of capital from private investors to fund their endeavours.

Today, we stand at an inflexion point: tech innovation with impact and sustainability at its core is developing at lightning speed and requires highly aligned capital to realise its full potential. We believe that family offices can play a pivotal role in propelling the growth of sustainable tech innovation.

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