Investment

Profile: A family office, sustainability, and the Nordic $1.1 trillion wealth fund

The wealthy have become increasingly keen to develop a social purpose, as well as resources to look after future generations.  The process often takes years to discuss. But YardHouse Capital Group of Denmark has taken just a year to create a family office structure which operates alongside an asset management enterprise for emerging and frontier markets.

Crucially, each enterprise is committed to sustainable investing. YardHouse is also developing green research capabilities, plus third-party partnerships with the likes of lobby group Climate Action 100+, backed by the world’s leading institutional investors.

YardHouse’s $250 million family office has developed a strategy for principal Claus Jørgensen, co-founder and chief operating officer at Danish technology firm Netcompany…

Chief executive Martin Rex Empacher used to be Nordic director of marketing at credit manager Muzinich & Co, prior to September 2019. “I’d like to find any way I can to make the world a better place. I don’t know whether I can be successful all the time. But perhaps I can move the needle a little bit. And this would be a requirement for all our clients in Europe.”

YardHouse has hired three emerging market strategic partners. It is close to signing up an Asian bond specialist and working with third-party advisers to flesh out private and listed opportunities. 

Empacher wants to hire six more partners in regions like Latin America and Africa, where he believes small impact deals can have a big future. He wants to build client assets to $1.5 billion but this will take time: “I am happy with our current size” 

YardHouse’s $250 million family office has developed a strategy for principal Claus Jørgensen, co-founder and chief operating officer at Danish technology firm Netcompany and another undisclosed family. Empacher does not rule out adding other families to the mix, where there is a meeting of minds. 

Martin Rex Empacher

For now, the YardHouse family office has sufficient exposure to the partnership’s emerging market investments. It is also committed to investing in stocks which comply with governance ratings developed by Norway’s $1.1 trillion sovereign wealth fund: “They have a similar mindset to ours, and we are happy to follow their example.”   

YardHouse is developing a committee to develop a sustainability methodology of its own. Stine Birk has agreed to serve, drawing on her top-level experience in Danish pension, banking, auditing and government governance. It has started to build its own research team by hiring Althea Nordari, previously an intern at Wiredelta, as an analyst. 

Empacher says the family office is taking a cautious view of the market. It has decent weightings in gold and cash, along with quality value stocks with a decent cash flow. It also has illiquid exposures, plus fund stakes. Its tech allocation is relatively low because the principal already has heavy exposure to the sector through Netcompany.

Empacher is sceptical of the way easy money has pushed up western stock market valuations: “The US Federal Reserve can say it will support the market and do whatever it takes.  But at the end of the day, we have created a consumer-driven economy and if the consumer is not buying anything, what happens then?”  

He says there is a depth of opportunity in emerging markets which cannot be matched in the West, where passive managers drive the market. In his view, Asian high yield bonds are far better value than their equivalents in the heavily indebted US.  

He says: “I’ve been working with emerging market funds for many years. They are my passion.  You can still see growth coming out of Asia, and parts of Latin America and Africa. They will become more self-sufficient than anyone expects, as their financial markets develop. And active, niche, managers are best placed to find opportunities, not passive funds.” 

He adds that their rapid growth in populations cannot be ignored, with Lagos is set to become the world’s largest city by 2050. Investors also need to understand the growing dominance of China, and the way it has become intertwined with other emerging markets: “The Chinese have been smart. They have achieved an industrial transformation in 15 years which took us 150. They have been gaining momentum in areas where we thought we were multiple leaders.” 

Large emerging market economies like Brazil, Indonesia and India are also more confident in dealing with the West, as are their corporations and family businesses. Western investors need to do their homework and plan negotiating positions with great care. The days of empire are long gone, although the legal systems it left behind can offer investors a degree of protection.

YardHouse partner, Stonehorn Global Partners, based in Hong Kong, has published research which argues China is beating the US at its own game by encouraging the growth of a middle class, retail consumption, a university elite and a great deal more. 

Chinese involvement in emerging economies can add complexity to investment opportunities. Stonehorn understands how this game works. It also pays close attention to bottom-up research and sustainable issues.

Stonehorn is a specialist Asian boutique started by an investment team which once worked for Macquarie Bank of Australia. At inception in 2019, it was backed by Trawalla Capital, the investment arm of Melbourne’s Schwartz family office.

Another YardHouse partner, HMG Finance, is backed by Goodhart Partners, where Denmark’s North-East Family Office is an investor. It backs the listed subsidiaries of established global brands like Nestle and Coca Cola, each of which have the clout and experience to negotiate deals with emerging market companies on equal terms.

Albright Capital is its third partner, seeking out private equity opportunities in the emerging market. Founded by former US Secretary of State Madeleine Albright, it has developed the reputation as a shrewd negotiator in several emerging markets. 

Elsewhere, YardHouse has backed MTI Investment, led by several Nordic executives in its plan to help small and medium-sized companies in East Africa to become more profitable. Impact investing has a big future, according to Empacher: “But it needs to offer investors a decent risk premium.” It also requires education initiatives. 

Empacher also uses Environmental, Social and Governance (ESG) tools to screen, and research, portfolio and impact opportunities. He stresses the importance of challenging the assumptions which lie behind sustainability.  He is sceptical about microfinance, for example, pointing out loans are often made to people who cannot necessarily afford to repay them.

He points out lithium batteries used in electric cars are large and difficult to reprocess. Around 80% of the cobalt used to manufacture them comes from mines in the Congo, where ownership and employment practices can be dubious.  

Empacher doesn’t suggest shorting Tesla stock to deal with the problem. But he believes there should be more scrutiny of supply chains to find clean, ethical, alternatives.  He has joined forces with a boutique adviser with audit skills to put together a sustainable fund for the sector. 

Energy, food and water security have become key issues to explore in an era of climate change, according to Empacher. His team have lately been investigating sources of alternative protein, plus water services and energy storage.

“I don’t think people have focused on the reasons for conflict between the Chinese and Indians on the Himalayas. It’s all about access to water.”

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