A New Era of Investment Opportunities
Family Offices who have stuck firmly to traditional asset classes are now venturing into new types of investments, including private debt, cryptocurrencies and impact investing. In fact, over the last decade the impact investment landscape in Asia-Pacific has undergone a significant transformation. Driven by the next generation of leaders, impact investing is not just a financial strategy, but a commitment to societal and environmental betterment. Aiming to better understand this landscape, we asked 100 representatives of Family Offices for their thoughts about the sector, and our key takeaways are:
Approaches to sustainable investing have demonstrated a maturing trajectory from opportunistic to Dedicated Impact/ESG Portfolio and Total Portfolio Approach across Asian Family Offices & Private Investors.
Intergenerational Communication Pathways: encouraging but critical need to build the case for “last mile” consensus to unlock more private capital flows
Majority of respondents reported that impact investments met or over-performed their financial return targets, demonstrating impact investing can be a financially viable investing style.
Top three reported themes reflect post-pandemic investor priorities. Emerging and maturing thematics (driven by bankability/maturity). Majority of investor preferences reflect an Asian tilt.
Family Offices embrace impact investment
More than a quarter of those surveyed (26%) are investing at least half of their portfolios on impact or ESG-based projects, with a further 23% investing a tenth or more of their portfolios. They are also more intentional with their impact generation, with the majority adopting “Total Portfolio Approach” (41%) or “Opportunistic Investing” (40%), reflecting a maturing trajectory on impact investing approaches.
62% of respondents also reported that their impact investments met or over-performed their financial return targets, proving impact investing can be financially viable. This also provides a boost in persuading the older generation on the value of considering impact alongside financial returns. Nevertheless, the survey identified a critical need for “last mile” consensus between different generations of investors on impact, in order to unlock more private capital flows for the sector.
Top Three Sustainable Investment Themes Family Offices Sought Out
For most representatives we asked, the key driver in the shift towards impact investment is a desire to contribute to solving sustainable development issues, although many cited a goal of supporting entrepreneurs and maximising their impact, followed by generating financial returns.
As Asia-Pacific grapples with a growing population and climate change impacts, innovative solutions in food production are critical. Those we spoke to said that food and agriculture is a key area of interest. This underlines one of the key challenges the region faces with both a growing population, as well as the existential threat posed to food production by our rapidly changing climate.
Ranking second was circularity and innovative materials. Addressing the plastic waste crisis in Southeast Asia offers immense potential for impact and profit. This is clearly a priority area for the region, as well as investors. Given Asia-Pacific generates more than 80% of global oceanic plastic waste whilst being home to around 60% of the world's population, investments in this area can drive the transition to a circular economy, reducing waste and fostering sustainable development.
Making up the top three investment themes is healthcare, another vital area for the region with access to care, cost, and quality remaining critical challenges for healthcare systems. The region will likely be the fastest growing in healthcare spending globally and account for more than 20% of total outlay. There is a significant opportunity for investors to contribute to transformative healthcare solutions in Asia-Pacific as this sector promises growth, given the region's rapid increase in healthcare spending.
Work to be done to find more investment opportunities in Asia-Pacific
Despite these clear investment themes – all three of which are key to the future of the region – only half (56%) of Family Offices have a geographic focus in Asia-Pacific. Surprisingly, well over a third (39%) are focused on global investments, North America or Europe, reflecting the potential force of Asian investors on the global impact investment market.
The gap between regional challenges and a desire to invest outside of Asia-Pacific is perhaps explained by the key challenges Family Offices identify in their impact investment strategy. At the top of the list is a high-quality deal flow with suitable exit options – something we continue to work on with our members. But the data seems clear: respondents want to see a path, or at least the potential, for exit before they can consider investing.
It is by no means the only challenge, though; ranking second is the difficulty in finding like-minded peers for co-investment. We are working hard to resolve this concern, helping Family Offices find investment opportunities with like-minded individuals, but collaboration is absolutely key if we are to solve the existential threats facing us. Collaboration is also – we believe – a hallmark of successful impact investors and something we tackled in an earlier insight article.
The impact investment landscape in Asia-Pacific is ripe with potential. For private investors, this is not just an opportunity to generate returns, but to play a pivotal role in addressing global challenges. By embracing impact investing, we can create a future where profit and purpose go hand in hand. Bold steps to invest in projects that make a real difference require Future Looking Investors.
For detailed results from the survey, please download the full infographic here.
(Photo by Gabriel Jimenez on Unsplash)