Family offices’ investments in China expected to cool down amid regulatory crackdown, real estate stress, UBS survey finds
- Only 39 per cent of global family offices expect to raise their asset allocations into China over the next five years, compared with 61 per cent in 2021, UBS survey shows
- Family offices from Asia-Pacific show a bias towards region as they allocate 40 per cent of their portfolios to Greater China while western Europe and US investors set aside 5 per cent
Family offices are cautious about China’s growth and remain wary of committing more investments to the country as a survey from UBS showed a heightened reluctance from such clients to increase their allocations in the mainland.
“It appears that the country’s regulatory measures and signs of stress in the real estate sector have blunted last year’s high levels of enthusiasm,” UBS said in the report, which surveyed 221 single family offices with a total net worth of US$493 billion between 19 January and 20 February this year.
China’s sweeping regulatory crackdown on the country’s tech sector, launched 20 months ago, has wiped out trillions of dollars in market value across New York and Hong Kong, while deterring venture funding for Chinese tech start-ups. Meanwhile, a number of mainland property developers are facing a liquidity crisis and have been pushed to the brink of default.
“The families Cambridge Associates works with are certainly closely watching the situation in China, and there are reasons why investors should take stock: the geopolitical concerns, recent Covid-19 policy and its impact on the Chinese economy, and other domestic policy concerns,” said Pang in an emailed interview.
Family offices were turning more conservative about their investments in China, said Andy Chen, chairman and CEO of Hong Kong-listed DL Holdings Group, which has a family office arm serving ultra high-net-worth families in the Asia-Pacific.
“There is great systemic risk around the entire world [as well as] uncertainty on China’s policy and economy,” said Chen in a phone interview.
The UBS report also highlighted a home bias among family offices, with those in the Asia-Pacific allocating 40 per cent of their portfolios into China, while investors from western Europe and the US set aside only 5 per cent towards China.
PwC expects its family office clients based in Hong Kong and China to continue investing in China as they were acquainted with the business environment there.
“Those family offices that we serve know the investment environment in China pretty well. We see a continuation of their investments in China,” said John Wong, PwC’s mainland China and Hong Kong family business and private client services leader in a phone interview.
Digital transformation, which spans e-commerce, data, the cloud and blockchain, was the most popular investment theme for 84 per cent of family offices, according to the report.
“Despite the current challenging market conditions, tech and innovation will remain an important future economic growth driver,” said LH Koh, UBS Wealth Management’s co-head of global family and institutional wealth in the Asia-Pacific region.
“The pandemic has accelerated digitisation across all sectors, making corporates embrace technology and digital culture.
“The report quoted a family office as saying that they are concerned about the polices and regulations in China. Yet we believe the worst could be over for China and expect the economy to bounce back in the second half after a very weak second quarter. We also believe the policies are positive to the sustainable development of the industries in the long-term, as it offers opportunities for the small to medium-sized enterprises to thrive,” said Koh.
Investing in technology enabling the digital transformation of companies in China was a bright spot, and the emerging sector could provide great opportunities over the next 10 years and beyond, said Chee-We Ng, founding partner of Shanghai-based venture capital firm Oakseed Ventures.
“Digital transformation is happening everywhere. In order for that to happen, a lot of technology has to come together,” said Ng.
“China is now leapfrogging in terms of cloud technologies in a way that has not happened before.”
He said Oakseed had recently partnered with SIS Asset Management to launch a new VC fund to invest in start-ups enabling the digital transformation in China, despite the plunge in technology stocks and struggling economy.
Half of the family offices in Asia-Pacific also expect sustainable investments to outperform the overall market in the next five years, according to the UBS report.
Family offices run and managed by next-generation members were more interested in green finance and ESG (environmental, social and governance) investments, said PwC’s Wong.
“If green finance is done well, they think that because of the sustainability of those investments, the long-term investment gains may be greater,” said Wong.