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FAMILY OFFICES

asianinvestor.net

asianinvestor.net

FAMILY OFFICES

INTERVIEW

INTERVIEW

The committed campaigner discusses the power of ‘catalytic philanthropy’, blending investments, and why he’s turned cold on private equity BY RICHARD NEWELL

J

ames Chen isn’t your typical Asian family office CIO. He’s the third generation member of a family manufacturing business operating from a base in Nigeria that was founded 60 years ago. “Chinese families go where the opportunities lie and our core business, which is enamelware, pots and pans, has been the family’s bread and butter for 90 years,” he told AsianInvestor, when asked about the unusual location. In total, the family has three different manufacturing businesses, employing over 2,000 people. It’s still family run, with Chen’s uncle and cousin overseeing the operation. Chen’s day job is running the family office and tracking the family’s investment portfolio (he did not respond to queries on its exact size). Plus he works on a variety of philanthropic projects, most of which have a dual mandate, for a financial and a social return. “I’ve found this to be the most interesting space to be working in now. When you are running portfolios in the market, it is about relative returns, whereas in the direct investment area it’s more about trying to create value.” The family investment portfolio is essentially a fund of fundstype operation with a very long term horizon. “Probably the biggest difference is that we are not so concerned about year to year performance,” Chen said. “We have the opportunity to think differently. That gives us a lot of flexibility. I don’t know what the ultimate return profile will be and it a great opportunity for us to take positions that others would not be able to do.” Having said that, Chen adds, “right now we are superconservative,” owing to a rather pessimistic view of the markets in the foreseeable future. Added to which “we are in probably one of the toughest operating environments [for the business]

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CAPITAL

This conservativism is reflected in the family’s asset allocation, which shuns bonds completely owing to falling yields and has fully 30% invested in gold. “We are very much into the gold space,” said Chen. “We invest in the both the physical gold and gold equities. We put a lot of effort into understanding and working around that. So that’s quite niche, but otherwise a lot of the managers we use would be quite well known. “I have a very grim view of what’s going to happen in the world. I hope I’m wrong but I don’t want to be unprepared.” The equity portfolio, which constitutes about 70% of the family office’s overall assets, is heavily tilted towards emerging markets and private equity venture investments. In the private equity segment, the family has invested in a lot of secondary ventures. “There was a point in time where we found those investments very attractive, but now there is too much money in that space,” Chen noted. He has already stopped investing in private equity, though. “We are just running off the portfolio now. We don’t feel we are properly being compensated for the risk we are taking in the market now.” Instead, he’s begun looking for more niche opportunities. “We tend to look for special situations rather than the big brand name funds; niche things like forestry, or mining, rather than these big buyout type funds. We have a done a number of start-up situations too.”

BLENDED VALUE

In addition, Chen has seeks investments along the ideas of blended value. Blended value is a concept that assesses an organisation on its ability to generate a blend of financial, social, and environmental value. Chen likes it; “I find that idea very stimulating and that has been the basis of my social investing.” One of the first projects he got involved in as an investor was a company that has a proprietary technology around adjustable power lenses for eyesight: “That got me on to the philanthropic journey around the issue of access to vision correction for those in

“We are just running off the portfolio now. We don’t feel we are properly being compensated for the risk we are taking in the market”

Low risk

PUBLIC CAPITAL

CAREFUL INVESTING

Medium risk

PRIVATE CAPITAL

SOCIALISING SUCCESS , PRIVATISING FAILURE

High risk

PHILANTHROPIC CAPITAL

FOCUSING ON AN INVESTING IMPACT

in the last 50 years. Most of our competitors have gone out of business and we’ve radically cut back.”

Risk averse government scale-up funding

Low risk indiviual / corporate funding

High risk philanthropic funding

START EARLY UP GROWTH

EXPANSION

MATURE

TIME

Source: Chen family

the poorest regions of the world.” It is estimated that 90% of cases of poor vision worldwide could be solved by a simple pair of glasses – a solution that has been around for centuries. “What I know today is there are 2.5 billion with uncorrected core vision and 90% of them only need a pair of glasses to see clearly. This has been ignored and is below the radar screen.” Chen set about identifying and investing in solutions to the supply chain, cost and healthcare delivery problems. “In the developed world we have an amazingly robust model for vision correction,” he said. “But it’s a high-cost model and doesn’t work in developing world environments.” He went to London to try and figure out if he could solve the problem. One of the non-governmental organisation (NGO) partners he worked with, Vision for a Nation, had already transformed eye care in Rwanda, building a sustainable nationwide eye care service that is accessible to all 11.8 million Rwandans. Another UK NGO, Peek Vision, provides health workers with portable tools to help detect cataracts, macular degeneration, diabetes and glaucoma with only a smartphone and an inexpensive clip-on lens.

Top left: James Chen, Hong Kong-based investor and philanthropist

A SOCIAL IMPACT

That success in Rwanda led Chen to reverse the ‘socialise failure, privatise success’ approach, by advocating to extend the process to as many people as possible to correct their vision. He set up an advocacy group called ‘Clearly’ in 2016 to raise awareness and catalyse action, “going beyond what we do and engaging other partners and collaborators”. That group funded research which found that providing a pair of glasses to needy workers led to a larger productivity increase than any other intervention. A dedicated working group in the United Nations, called Friends of Vision, is working to convert this to global action. In the VC space, Chen said, “it’s all about how you de-risk something. I take that kind of framework and apply it similarly in the non-profit environment. You’re dealing with these social entrepreneurs and my role as a social investor/donor allows me to make a judgement as to whether this is an innovative and interesting idea worth doing.” He’s not sure that his work is impact investing – indeed he questions the concept entirely. “We start with the idea of creating a new business and making it sustainable, so we keep an eye on the fundamental social impact features,” he said. “Some of the stuff I see has me scratching my head about ... whether it has a social impact.” Chen believes investors must appreciate that sustainable investing won’t reward as much as pure market investments. “Generally there is something of a trade-off. Having said that, if a project is managed the right way, you can have the impact and the better financial return.” Spring 2019 |

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Profile for clearly.world

James Chen Interview featured in Asian Investor 2019 April Issue  

James Chen Interview featured in Asian Investor 2019 April Issue  

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