In conversation with Aradhna Dayal, CIO of Regal Ford (Asia) and Founder and CEO of Access Alts Asia
Counter to the world of flashy VC firms and high-profile tech events, the network of family offices around the Asia-Pacific region is relatively private, and hidden from the public eye.
Family offices (FOs) refer to wealth management firms set up by Ultra High Net Worth Individuals (UHNWIs) – people who have assets of US$30 million or more – to manage and grow their wealth. While family office investments have a long-standing preference for risk avoidance with a view to stable wealth growth, there’s increasing interest from these secretive investors in backing early-stage tech ventures.
According to ‘The World Ultra Wealth Report, 2019‘ by Wealth-x, at 1,364 for every million adults – or 31% of the global total – Hong Kong has the highest density of UNHWIs, more than four times the density of the United States.
The combined net worth of UHNWIs in the world was $32.3 trillion in 2018, and is expected to grow to $43 trillion by 2023 (Wealth-x).
In order to grow their wealth through investments and other endeavors, and manage tax liabilities, UHNWIs often choose to set up family offices (FOs) to provide a substantial inheritance for future generations and handle matters related to succession and wealth distribution.
While most FOs traditionally invest in relatively safer assets or industries like real estate, automobile manufacturing, or pharmaceutical industry, more and more family offices are diversifying and investing in startups, technology, and even cryptocurrencies, in a bid to reinvent themselves and evolve with the changing times.
To understand which areas of technology are drawing the most attention from FOs, and why FOs are moving towards alternative investment options, we spoke to Aradhna Dayal, the CIO of Regal Ford (Asia), one of the oldest FOs out of Hong Kong.
Dayal is also the Founder and CEO of Access Alts Asia, an Asia-focused, members-only investment club, that brings together FOs, Endowments, and Foundations, to help FOs freely exchange ideas, invest together, and grow portfolio companies across borders. With about 200 members and $2 trillion in represented assets, Access Alts invests in public and private market Funds and future Unicorns from Silicon Valley to Shanghai.
What are the most promising tech areas for family office investments?
I think FOs over the past year, and particularly since COVID-19 started, have really been looking at a few sectors. I think deep tech is on everyone’s mind, because if you think about it, all businesses need to reinvent themselves post COVID-19.
Healthcare is super important. I think, suddenly, we all realized that well-being is a very important area and is on top of everyone’s minds. So, all the way from vaccine development to telemedicine – these are all areas that FOs are looking at and thinking about how they can get an edge.
With lockdowns, people can’t go out, but they haven’t changed basic human psychology. People still want to look nice, feel good, be motivated, connect, be appreciated, and be a better version of themselves. So, how will they do it? They’ll consume differently – in a virtual space.
So, everything from having virtual influencers, to virtual companions, to Augmented Reality (AR), Virtual Reality (VR), all the way to what will be the next luxury item or, the next status symbol.
You can’t wear a diamond and go to a gala anymore. Instead, perhaps it’s getting access to an amazing virtual concert, or getting access to a great esports star sitting in Korea, or perhaps, being a part of an exclusive virtual fashion club. Maybe that’s the new status symbol. So, I think FOs are very interested in understanding these trends.
Lastly, logistics and supply chains are shifting, and delivery of goods and services amid lockdowns is severely challenged. So, understanding how [goods are] moving, where they’re moving to, and how tech can transform supply chain and logistics, how to get things to people when we’re locked down, is a key area to focus on.
What are the areas of tech that FOs are investing in right now?
I think family offices invest across the spectrum—people invest all the way from infrastructure to AI and how that’s transforming education, litigation, and even energy. So, I think FOs look at spectrums all across the board.
FOs also like to look at distressed assets – this is a great time to look at distressed investing. And Asia is the world’s largest distressed market, with $2.1 trillion in distressed assets. So, quite a few families will be looking to make those acquisitions in the months to come.
FOs are generally more risk averse, and startups and new technologies are usually considered to be high risk investments. What is driving FOs towards these fields?
Family offices like physical assets. Real estate is great for them – buying hotels, buying buildings, or just land, it just kind of makes sense to them very organically. But taking the example of my family office, why would we move out of our traditional investing basis, from real estate into technology, and then turn to the future? I think three primary drivers:
Firstly, for portfolio diversification. I think that pretty much all FOs want to move away from their traditional businesses and their traditional investing, which could be real estate, or automobile manufacturing, or pharmaceuticals. I think diversifying your portfolio into newer areas that are not related to either your core operations, or your core investments is the way forward. And we need to do that now to be able to really build a portfolio that will last 100 years.
And the second and a very interesting reason why a lot of family offices love to invest in tech is to invest strategically. FOs look at technologies that can actually help enhance and improve their own core businesses or their core assets.
So, to give you an example, a pharmaceutical company could be looking at telemedicine, or looking at virtual pharmacies in order to be able to distribute their products more effectively. A food manufacturer or agriculture-based FO could be looking at investing in robo-trucks to take their produce from rural areas all the way to cities.
Or, for us, for example, we could be looking at real estate technologies that will make our buildings safer, healthier, energy optimized, etc. So investing in technologies that can actually enhance our core essence and businesses strategically, and where we can also add value as operators and as business owners is also key.
Finally, investing in technology is a great way for families to engage their next generation who may find the family’s traditional business boring.
Are there any challenges with investing in tech, compared to other areas?
I think, just access to deals, because we are not technologists, is a challenge. We’re not Silicon Valley entrepreneurs and so just getting access to the right deals is very hard. FOs have to compete against the SoftBanks of the world, or other institutional investors who’ve been investing for a long time in these areas.
Understanding companies can also sometimes be difficult. I can understand the logic behind the company and its business. But do I really have the ability to understand the tech behind it? I think that’s quite hard.
These two are the biggest challenges that I see FOs facing, and to kind of navigate that, I think a lot of families like to actually come together.
What are the things you look for when investing in tech?
For me, it is super important to see the path to profitability – can this company be profitable? I don’t believe in sexy stories of astronomical growth and crazy valuations by companies that will never really be profitable. If it’s not making money, it makes zero sense. That company will never be able to hold in the long term.
I would rather look at a company that grows steadily and has good unit economics, allowing it to actually make money.
Scalability of the concept is important, too. It could be a very exciting technology. But how many businesses, or governments, or how many people would actually adopt that? So, scalability is super, super important.
To some extent, I like to think, is it a global concept? I always look at that. I don’t like regional concepts because I think that this is a very globalized world. And I think that a company that cannot explain its rationale to investors or consumers globally, is at some point going to be in trouble.
The company should have the ability and a concept that can grow globally, so we can use our network to build billion dollar businesses.
And finally, especially, after COVID-19, it’s important to know what [the company’s] prognosis is, and its relevance in the post COVID world.
Speaking of COVID-19, the global pandemic has opened up new opportunities for tech companies while also bringing about the most intense business challenges. Is COVID-19 going to impact FOs’ future tech investments? If yes, how?
If you think about it, this is an unprecedented opportunity for FOs to really build a portfolio from scratch with amazing concepts, companies, and entrepreneurs that are going to redefine everything for businesses, and life as we know, post COVID-19.
As the Great Reopening begins post COVID-19, we will see a swatch of new technologies that facilitate the “Future of Work and Life.”
There are going to be huge safety and health issues, identification problems, contact tracing issues, post COVID-19. And FOs are going to want technologies and entrepreneurs that are going to come out and provide solutions to all of these.
I think it’s a once in a lifetime opportunity to actually invest in companies like this, the huge game changers that are going to come out of COVID-19. So, capitalizing on all of these changes and investing in companies and providing solutions to that, is going to be key.
Companies are going to pivot and use their technologies, to really power the greater opening around the world. And I think FOs should be really looking at concepts like that.
Unlike institutional investors, FOs in general are very hands on with both their operations and their investments and I genuinely believe that rather than just going off after companies that have big valuations, all as family offices or investors should be going after companies and supporting those that are changing the game, or that will help the great reopening.