Family Offices and HNWIs Investing More In Digital Asset Service Providers

An October 2022 survey report co-authored by KPMG China and Aspen Digital has revealed that the majority of Family Offices (FOs) and High Net Worth Individuals (HNWIs) in Hong Kong and Singapore are investing in digital asset service providers mainly through direct equity, followed by private investment in public tokens.

“We have observed that family offices/HNWIs prefer direct equity investments, while crypto-focused venture capital firms favour equity plus token warrant approach to invest in digital asset service providers,” said Matthew Lam, Head of Research at Aspen Digital.

As per the same survey, the most common type of digital asset service providers that FOs and HNWIs invested in were cryptocurrency exchanges (57% of respondents), software developers (57%), cryptocurrency custodians (28%) and cryptocurrency data service providers (28%).

The survey established that solid business models and strong operational capabilities were the leading reasons (given by 58% of the respondents) for investing in digital asset service providers. 21% of respondents expressed interest in investing in digital asset service providers.

According to Arizton (providers of comprehensive market research reports, advisory and consulting services), the global family office market size was valued at USD 14.87 billion in 2020 and is forecasted to reach USD 21.11 billion by 2026, growing at a CAGR of 6.01%.

FOs generally provide private wealth management advisory, financial and investment services for HNWIs. Singapore and Hong Kong are leading financial hubs for FOs in Asia. According to the Agreus report “A Focus On Family Offices In The Asia Pacific”, 25% of FOs in Asia are located in Singapore and 20% in Hong Kong.

As per the KPMG China and Aspen Digital survey, the leading reasons for FOs and HNWIs to invest in digital asset service-related companies were portfolio diversification (71% of respondents), rapid ecosystem growth (64%), the high growth potential of the company (57%), and attractive return offered by native tokens (57%).

The survey further noted that key trends in the family office market are adopting disruptive technologies such as Artificial intelligence (AI) & Blockchain and strengthening sustainable investments.

“It is still early in the evolution of cryptocurrencies and the wider crypto economy. However, many investors are of the view that the attributes of blockchain technology mean that the overall industry will grow significantly in the coming years. As such, rather than investing in specific cryptocurrencies or tokens, they are investing in infrastructure providers which should benefit from overall industry growth”, said Barnaby Robson, Partner, Deal Advisory,  at KPMG China: 

Regulatory certainty, anti-money laundering (AML) quality, know-your-customer (KYC) controls, and the competitive landscape remain key considerations for investing in cryptocurrency companies. Family Offices and HNWIs will continue to watch the crypto space for investment options closely.