Private assets, family offices and the Asianized world economy: Notes from the IMF/World Bank Meetings

The International Monetary Fund is worried. Against a troubling backdrop of slow growth, low interest rates, debt and stress for the world’s financial institutions, anti-government demonstrations are turning into full-fledged urban riots.

Its October annual meeting was one of the most troubled I can recall. Kristalina Georgieva, the new IMF managing director, went so far as to ask her audience of finance ministers, central bank governors and Wall Street grandees to “act now” to avert a financial and economic catastrophe of epic proportions.

 The Asianized World Economy

I believe events like these – and Brexit – constitute the birth-pangs of a new era: an “Age of Geoeconomics”, as defined by the Asianization of the world economy and the growing influence of sophisticated asset owners, such as state pension schemes, endowments and family offices. The outlook need not lead to disaster, but people in the West may find it stressful. 

When it comes to sustainability, gender equity and private debt markets around the world,  endowments and large family offices are way ahead of the consultants and “Davos men” who advise pension schemes and supranational policymakers

Tellingly, on the last day of the IMF meeting, Credit Suisse published the latest results of an authoritative wealth report, which showed there are more wealthy Chinese in the top 10% bracket than Americans. 

China is continuing to grow, replacing Europe and the US as the principal engine of global wealth growth, despite the trade war weighing on the nation’s economy. Many delegates at the IMF discussed a McKinsey report, which argued that Asia would account for 50% of global GDP by 2040.

All this is happening against the backdrop of an accelerating “quest for yield”, as pension schemes in indebted western economies struggle to work out how to service their liabilities using bonds on painfully low yields. 

 The Washington Consensus No Longer Leans Neoliberal 

The Washington DC meeting witnessed a rearguard bravado, displayed by unreconstructed neoliberals like R. Glenn Hubbard, chairman of the Council of Economic Advisors under President George W. Bush, and Stephanie Flanders, former BBC economics editor. 

But there was a clear “shift to the left” in mainstream opinion or, at least, an acknowledgement of the social and environmental responsibilities of chief executives. 

Jamie Dimon, chief executive of JP Morgan Chase, confirmed his recent conversion to sustainable investment at an Institute of International Finance Forum gathering, going so far as to embrace Scandinavian social democracy, with unprecedented vigour. Milton Friedman – where are you now? 

The IMF’s Kristalina Georgieva said that, from now on, climate risk and social considerations like gender equality would be “front and centre” of the IMF’s financial activities. Ivanka Trump, speaking at an IMF clossing session insisted that, henceforth, “developing countries must do more to empower women” to get US aid. 

 Endowments and Family Offices Ahead of the Curve

However, as I argued at the African Union (AU) – New Partnership for Africa’s Development (NEPAD) Infrastructure Investment roundtable held 18 October 2019 at the Elliott School of International Affairs, George Washington University: “the asset owners of Asia, Africa and Latin America shouldn’t have to be lectured by Northern Hemisphere governments with less than exemplary records regarding climate change or women’s economic empowerment!”

When it comes to sustainability, gender equity and private debt markets around the world,  endowments and large family offices are way ahead of the consultants and “Davos men” who advise pension schemes and supranational policymakers. 

In emerging markets a broad range of specialist asset managers have used their funding to build non-bank private debt franchises thanks to seed money provided by South African, Asian and Latin American family offices – long before the “new asset class” emerged on the radar screens of institutional asset allocators. Anyone in any doubt should check out Barak Fund Management, which has built up extraordinary trade finance business in just ten years. 

In the US, sustainable investment giants like Calvert have won mandates from university endowments, foundations and large family offices. They have become willing to experiment, innovate, and develop a range of tech-driven businesses, funded by a broad range of family businesses. 

Long-term asset owners are disinterested in passive management. They want to get involved in actual businesses capable of moving the economy forward, as opposed to endless debates on how to implement government policies in the West. 

*The tentative findings and personal interpretations and conclusions expressed in the article are those of the author, and thus do not necessarily represent the views of the Singapore Economic Forum, the World Pensions Council or the Global Infrastructure Facility or any of their members. 

Nicolas Firzli is chairman of the Singapore Economic Forum, director-general of the World Pensions Council, and advisory board member of the World Bank Global Infrastructure Facility