April 12, 2023
The Hong Kong family office expects more direct investment opportunities in the private market in the second half of 2023.
Nan Fung Trinity, the family office of Hong Kong business conglomerate Nan Fung Group, is planning to add positions in the private credit and distressed credit space, especially through secondary deals, amid rising interest rates.
Overall, Nan Fung Trinity sees more fund deployment opportunities in the private market this year than last.
“Tactically, there’s probably more interest in things like secondaries into private credit or distressed credit,” said Helen Zhu, Nan Fung Trinity’s managing director and chief investment officer, at AsianInvestor’s Family Office Briefing in Hong Kong late last month.
“That whole space had very little interest for the last few years because of zero or negative interest rates, so I think now there’s actually better demand, better risk premium that you’ll be getting for that illiquidity.”
“So, those are some of the more interesting areas that we’re technically looking at for this year,” Zhu said.
The family office hasn’t looked at private credit for several years, but will weigh into the space more in the next couple of years.
In general, more direct investment opportunities in the private market might emerge towards the second half of 2023, and right now, some of those opportunities are more attractive in the secondary space than in the primary space, Zhu said.
Nan Fung Trinity typically allocates its alternative investments to well-recognised global funds with diversified exposures, hence its relatively light regional focus. Its positions vary from angel and seed-stage all the way to large-cap buyouts.
“If we do half a dozen to 10 of these fund investments per year, and then we do that across multiple vintages, after five years, we’ve got a very, very diversified portfolio of 40 to 50 different funds (through which) we can really get exposure to many different opportunities,” Zhu said.
The family office made no direct investment last year because it thought the risk-reward balance in the public market was “much better” than in private deals.
But it did deploy certain positions into funds for diversification across different vintage years, geographies and strategies, as well as to support its longstanding partners and deploy into their newest funds.
However, Zhu said that almost no funds it supported last year had deployed more than a single-digit percentage of their cash raised so far amid market downturn and uncertainties.
“The market is very dynamic, and we have the flexibility and luxury to adjust to it fairly quickly,” Zhu said, adding that Nan Fung Trinity’s position could be adjusted rapidly as it saw market opportunities arise.
“Because we’re not an endowment or something like that, we don’t have to worry about the denominator effect and rebalancing in that regard,” she said. “What we really think about on the public side is the weighting between cash and securities, and on the private side, basically just the pace of deployment.”
Echoing Zhu’s comments, Kevin Liem, managing director of Hong Kong-based multi-family office Masan Capital, said the keenest advantages of being a family office were flexibility and being unconstrained by institutional mandates.
“The biggest opportunity we’ve seen in the past year is working with institutions and being the liquidity provider in certain circumstances,” Liem told AsianInvestor at the same event.
For instance, Liem said last year many institutional investors had mandates to offload some of their private equity positions due to the denominating effect and the rebalancing mechanism. Because on a relative basis, private market prices were still very high, surpassing the portion set out in institutions’ strategic asset allocation plans, while public assets continued shrinking.
“The liquidity to buy those positions was not there,” he said. “So, as family office, we could take the opportunity to capture those returns, because if you were talking to the right seller, you could easily get a 30%-plus discount on those positions.”
The best secondary deals were opportunities with big funds and big names, and that the key to capturing those opportunities was having simply access to them, Liem noted.