K I Woo
Sep 22, 2014
Asia’s unprecedented three decades’ growth has driven the formation of many family offices.
These have resulted from the need to provide for the growing number of family members financial and material needs without interfering with successful normal day-to-day family-business operations.
Danai Pathomvanich, Hatton Capital Ltd’s managing director said that many successful family offices have evolved significantly over the past decade.
“Even though our primary objective is providing for the health, educational and living needs of our three generations of shareholders, we are managing these funds to generate growth over the long-term, he said.
Mr Pathomvanich, whose family office was initially created by shareholders of one of Thailand’s leading industrial equipment sales and leasing companies, notes that it has quietly evolved into a fast-growing asset management, advisory and investment company with offices in Shanghai, Hong Kong and Bangkok.
As a result, today his company manages funds for several additional wealthy family offices throughout the region.
“Our total assets-under-management (AUM) now exceeds $US250 million and we have generated excellent returns since our inception.”
Moreover, as Hatton has evolved into an active investment vehicle, it has also attracted international institutional investors into many of its acquisitions. “International institutional investors including Black River Asset Management (a Cargill Company), Cassia Investment Ltd, United Overseas Bank and Bangkok Bank Ltd have provided equity for our transactions.”
As a well-funded family office, Mr Pathomvanich said one of his company’s key strengths is its ability to invest its own funds into acquisitions.
”In addition to providing our own capital, our investee companies receive our shareholders’ and institutional partners’ knowledge, experience and decades of regional relationships.”
Corporate governance critical
Mr Pathomvanich explains that over the past several years, corporate governance has become a critical institutional investor issue throughout Asia.
“Most of our institutional investment partners now demand our boards include independent directors that can specifically address forward-looking long-term issues that are crucial to the investment’s future prosperity.”
Prior to the 2007 and 2008 US sub-prime crisis, most directors were chosen for their industry experience and connections and more often for their relationships with owners.
“Our institutional investor partners now insist that directors should be capable of engaging in strategic discussions, forming independent opinions and most importantly are able to work closely with executive teams to ensure long-term goals are well formulated and completed.”
Some of Hatton’s most successful forward-looking boards, he said include directors that previously guided their companies to adopting cutting-edge technologies or successfully resolving market disruptions, especially during the Asian (1997), SARs and avian-flu pandemics.
Institutional investor partners have told Mr Pathomvanich that many Asian boards spend too much time on rear-view
issues such as quarterly reports, audit reviews, budgets and compliance.
“European and US institutional investors said many companies were undermined by negligent, over optimistic or ill-informed boards prior to the sub-prime crisis,” he says.
The point is when boards spend too much time looking in the rear-view mirror and not enough scanning the road ahead, governance suffers.
To mitigate the dilemma, Pathomvanich said his investee companies are now asked to develop dynamic forward-looking board agendas and most importantly ensure that their directors have the ability and sufficient time to thoroughly address the issues during each annual period.
“Board members must look further out than anyone else in the company. That’s to counteract the fact that in many cases, chief executive officers are the last ones to see changes coming,” he points out.
“As well, sustainable companies will those that most adroitly address the long-term economic, technological and demographic trends that are radically reshaping the global economy. The continuously evolving environment makes overseeing successful multinational businesses much more complex.”
Too many distractions
Mr Pathomvanich says that institutional investors have told him Asian company boards are constantly distracted by compliance and new detailed regulations. Additionally, they simply don’t know enough about the company’s fundamentals and long-term strategies to add value and avoid trouble.
“These directors should not be there merely to support chief executive officers, he says. “It’s vital, they participate in strategic decisions, form independent opinions, and work closely with executive teams to ensure long-term goals are formulated and subsequently completed.”
In other words, today’s best boards should be able to act as effective coaches and sounding boards for top management teams.
Strategy is key
Another interesting recent development that Mr Pathomvanich has experienced at first hand is the evolving central roles that boards are now playing.
“Many of our investee boards now participate in creating and ultimately agreeing on the company’s ongoing strategy.”
In addition, many forward-looking boards are now required to conduct formal market-and-competitive landscape reviews.
“They must be equipped to help identify often dangerous “unknown” competitors on the horizon,” he warns.
To aid this effort, several of his investee companies, with operations in Asia and Europe also regularly invite renowned experts and professional in various fields including technology, regulatory matters and economics to address board meetings.
“Regular overseas board meetings often apprise directors of new company-strategy relevant technologies and market developments,” Mr Pathomvanich affirms.
This article appeared in Asia Asset Management, Journal of Pensions and Investments, August 2014.