Are family offices leading an artificial intelligence gold rush?
The myriad applications of artificial intelligence and its exponential evolution over the past few years is unsurprisingly piquing the interest of family offices (FOs) around the world. Naturally forward-thinking and open-minded to the possibilities of new technology, FOs have found an affinity for a progressive tool that is constantly increasing in its usefulness.
As revealed by The Asia-Pacific Family Office Report 2023 from Campden Wealth and Raffles Family Office, given the substantial media coverage it has received, artificial intelligence stands out as the most sought-after new technology from an investment perspective. A net 32% of family offices are actively looking to increase their engagement in this field, and an additional 39% are planning to initiate an exposure. With endless potential uses for improving all life, we could well be at the cusp of an AI gold rush.
“We are at the beginning of a major wave of investments in AI,” says Dr Thomas Kehler, a co-founder of human-interactive AI firm CrowdSmart with more than 40 years of experience within the AI space. “Historically, it’s not the first mover that ultimately dominates. In the case of the current AI wave, we are early and the current implementations are already showing signs of the need for massive improvement, which will result in significant investment opportunities. A third wave of AI technology is emerging, addressing critical safety, corporate productivity and social impact issues by engaging human collective intelligence and developments in neuroscience.”
“The current wave of cutting-edge technological innovation, exemplified by AGI (Artificial General Intelligence), will usher in a new era of technological innovation for humanity,” says Xiaojun Liu, Chief Financial Officer of Fargo Wealth Group, a digital-first multi-family office focusing on China and the Asia-Pacific. “This era can be compared to the previous 40-year cycles of the internet and mobile internet and may even be deemed a new Industrial Revolution for mankind.
“AGI is poised to revolutionise how humans access information and interact with computers, leading to a substantial boost in productivity and a profound transformation of our daily lives.”
“I advise family offices to distinguish between AI-enabled and AI-infrastructure investments,” says James McClure, a Venture Capital Partner at Antler in Australia with deep startup experience from commercial operations roles at Big Tech companies like Airbnb and Google. “The analogy here is cloud-computing enabled (e.g. Dropbox) vs cloud-computing infrastructure (e.g. AWS). The benefits of AI will be seen across investments, but there will only be a few direct winners in the AI infrastructure game.
The report also revealed that family offices have been investing in fintech and climate change mitigation for an extended period, with 61% and 52% of them, respectively, having an existing exposure. Both of these technologies remain popular among those already invested, however only 3% intend to invest in these areas for the first time.
“This is about the mandate of the family office rather than ‘fintech is now saturated’,” says James McClure, who has made more than 50 angel investments during his career. “The key word in family office is ‘family’, which means their background is frequently the biggest driver to their direct investments. For areas outside of mandate, typically family offices will look to VC funds to provide exposure to sector-agnostic returns as well as future co-investment opportunities.”
AI has a high potential to change the fundamental infrastructure of how organisations generate value. - Dr Thomas Kehler.
“Fintech and climate change will continue to be crucial investment themes, but each of these industries faces certain potential investment barriers,” says Xiaojun Liu. “For fintech, varying regulatory requirements and approaches to the financial sector within different countries and regions can significantly impact the pace and cost of global expansion for fintech startups. As for climate change, finding the right path to commercialisation is a key consideration.”
“AI has a high potential to change the fundamental infrastructure of how organisations generate value,” says Dr Thomas Kehler. “Concerning climate change, current generative AI technology is a fundamental threat. It is estimated that [OpenAI’s] GPT4 took six months and 60 million kilowatt hours to train, with an estimated CO2 impact of 13,000 metric tons. New AI technologies based on neuroscience adaptively learn and do not require massive training.”
In contrast to the increased interest in fintech and climate change mitigation, the report found that relatively few investors are looking to increase or initiate involvement with robotics and blockchain (possibly influenced by the poor year suffered by cryptocurrency), and there’s a possibility of net disinvestment from the Metaverse.
“Entrepreneurial and investment opportunities in the crypto and blockchain space will persist in the long term,” says Xiaojun Liu. “However, due to the ongoing assessment of their impact on traditional financial industry operations and the high level of volatility in the sector, we will approach investment opportunities in this industry with relative caution. Additionally, we will place a stronger focus on opportunities at the technological level.”
“Use of blockchain and robotics is significantly higher in this ten-year economic cycle, than in the previous ten years regardless of the crypto boom-bust cycles,” says James McClure. “However for family offices, their time horizon is defined by the family - much like how we alter our pension profiles depending on how close we are to retirement. Family offices with a shorter investment horizon are not looking to deploy in this space.”
The Asia-Pacific Family Office Report 2023, which is accompanied by European and North American editions, is based on a statistical analysis of 76 survey responses from Asia-Pacific single family offices and private (not commercial) multi-family offices, with an average net worth (including operating businesses) of US $900 million and a collective wealth of US $68 billion. The family offices surveyed have, on average, US $500 million in AUM and aggregate AUM of US $41 billion.
