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Coronavirus may accelerate Chinese family office pivot from growth to preservation

By James Beech

Chinese families started shifting their investment strategy from wealth generation to preservation in anticipation of a global economic downturn even before the deadly coronavirus outbreak disrupted China’s slowing economy.

Between March and August 2019, the same proportion of family office participants surveyed by Campden Wealth for its new Chinese Family Office and Wealth Management Report 2020 said they had adopted a growth-oriented approach (44%) as a balanced approach (43%) to their investment strategy, and a much smaller proportion had adopted a preservation-oriented approach (13%). Their thirst for yield was streets ahead of the average proportion of global (25%), Hong Kong (also 25%) and Asia-Pacific (19%) family offices focused on growth.

China’s determined pursuit of growth when investing was reflected in their average overall portfolio return of 11%, mainly due to direct private equity (19%), private equity funds (15%) and direct real estate (14%) investments. China’s 11% return was hotter than the average 5.4% global family office return on investments in 2018, which had markedly cooled from the record-breaking global average of 15.5% in 2017 amid geopolitical and economic uncertainty.

However, that uncertainty was starting to be felt by Chinese families surveyed by Campden Research in 2019. Several described the geopolitical and economic context in which they operated was “increasingly volatile” and that, within the next five years, the environment could be “dramatically transformed”, Campden’s Chinese report said. The likelihood of a reversal in the globalisation over the last two decades was raised several times.

“I am not optimistic about the next 12 months,” one family office executive told Campden researchers, before the coronavirus struck.

“The global economy is struggling—the major European economies, the Japanese, and the US economy are all slowing, as is the Chinese economy, which has been the engine for global growth.

“Furthermore, policy-makers have limited tools at their disposal. I am being extremely cautious.”

While many families see an economic downturn on the horizon, some were relatively optimistic about their investment opportunities, the report said.

“Certainly, even in the next 12 months, valuation methodologies will evolve. But, the downturn itself, government intervention, and rapidly changing technology will bring forth opportunities.”

Others reiterated a likely move in investment strategy towards preservation and an even greater emphasis on the domestic market.

Yet China’s economic growth was 6.1% in 2019, the slowest in three decades, partly as a result of the trade war with the United States.

Some 14 Chinese cities and provinces which account for almost 69% ($14.3 trillion) of China’s gross domestic product will remain closed well into February, well beyond the Lunar New Year holiday, as the authorities continue to grapple with the coronavirus, according to Bloomberg. Travel and tourism sectors have been impacted by the outbreak while global corporate business have suspended trading.

The Chinese government pumped a net 150 billion yuan ($22 billion) to shore up its economy today.

The Chinese family office space was catching up with the gloomy worldwide trend identified in the Campden Wealth Global Family Office Report 2019. More than half (55%) of principals surveyed from around the world said they expected a market downturn to start in 2020. Nearly half (45%) said they were re-aligning their investment strategy to manage risk or take advantage of opportunistic events (42%).

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