Tom Keya on the potential for digital asset investment for HNWIs and family offices
Tom Keya is an executive at Ruthberg LLC and founder of Soulh Tech, a mental health and wellbeing platform. His work encompasses business development and impact investment, and in this article, Tom gives his thoughts on digital investments for family offices & HNWIs.
As the world enters the third consecutive year of the global pandemic, family offices are now working with a new normal.
Private wealth investors, family offices and wealth managers are shifting to cross sector investments, including a growing number within the digital asset space.
Private wealth investors and family offices turning to digital assets
The digital asset market will continue to transform investing strategies as we go through 2022, with family offices and private wealth investors keen to shift away from a partially failing traditional financial system.
Since the pandemic began in early 2020, we’ve seen portfolio diversification and business development strategies be deployed by high-net-worth individuals (HNWI), incumbent wealth managers and across the family office industry.
Many investors combine traditional asset classes with digital asset investing
Family offices and private wealth clients have, of course, long been hedging their portfolios against socioeconomic volatility.
A wide variety of innovative private wealth investment strategies are used across the private wealth segment to ensure that total family office assets are maintained and maximised.
Investor sentiment among many family offices remains optimistic
Investor sentiment among high-net-worth individuals and family offices remains strong, despite all the recent challenges.
According to a survey from Citi Private Bank , approximately 75% of respondents from family offices expect to see around 5% returns this year.
However, “ultra-high net worth individuals expect more” Tom Keya says, with 30% looking for returns of 10% or more.
Family offices shifting attention to digital asset investing
A survey from Goldman Sachs in Q4 2021 reflects on the rising interest in this asset class.
Every family office is looking to the long-term cost of investment products and decisions.
With vast amounts of capital to invest, family office strategies are therefore increasingly turning towards digital assets.
Therefore, we’re seeing a significant increase in interest from family offices in digital assets.
Digital asset investment diversifies family office portfolios
Digital assets provide crucial diversification for family office portfolios.
According to Goldman Sachs, around 15% of family offices around the world are already investing in blockchain based digital assets, such as cryptocurrencies.
A further 45% are considering adding blockchain technology, other innovative technologies and digitally structured products to the mix in the future.
Family offices can take higher risks through exposure to new markets, and of course they have more flexibility to gain value through innovative investment solutions.
Low interest rates and soaring inflation is also adding to interest in digital investments, as investors seek out alternative sources of wealth.
Using digital assets to hedge against inflation
Around two-thirds of those surveyed by Goldman Sachs say they are considering digital assets as a hedge against inflation.
The idea that cryptocurrencies and associated investment products can be equated with gold as an asset class is nudging interest even higher.
There is also an increase in family office involvement in tokenisation, which offers another route into digital assets.
Rather than investing in straightforward equity and receiving dividends, wealth managers and lawyers like Tom Keya, have instead explored investment products relating to tokenisation.
By offering crypto tokens, companies are enticing investors into dealing with digital assets and fractional ownership, rather than traditional dividends.
More security needed for crypto investors
However, Tom Keya says that, “it is worth noting that family offices and institutional investors are increasingly demanding more security regarding regulatory risks of crypto versus fiat currencies.”
They may be generally more able to withstand volatility but there are still concerns regarding the possibility of cyber-attacks on central operations, for example.
Blockchain technology does, of course, have other uses now that it’s underpinning all kinds of other solutions in the financial sector, doubts surrounding the safety of the market remain for some investors.
Security is on the agenda for many governments and compliance bodies right now, and when there is a clearer way through the risks of crypto as digital assets, we will see many more clients taking steps into investing in these alternative assets.
Investment in businesses linked with the metaverse
Digital assets are expanding much faster than ever before, with simple cryptocurrency investment one rung on an increasingly complex ladder.
Tom Keya believes that public companies such as Meta (the new name for Facebook) are now making the ‘metaverse’ a profitable option for investors hoping to capitalise on yet more revenue streams.
Growth perspectives have been surpassed by decentralised autonomous organisations (DAOs) working with the likes of Meta to construct another path for institutional investors.
The metaverse is still very much in its infancy and I want to be clear that there is no proven value proposition for any fund manager to speculate with generational wealth from family offices.
However, there are slightly less volatile retail style exchanges publicly trading companies who are somehow linked to the metaverse, either through their profitability or their business and central operations.
These include the likes of Meta Platforms Inc. Formed in October 2021 as the replacement for Facebook, the company has already released Horizon Worlds. This is a virtual reality metaverse platform and while sales of Meta’s peripherals are increasing, we need to wait and see how this plays out.
Examples of companies linked with the metaverse
Tom Keya shares that other companies linked to the metaverse that can be invested in by family offices and funds looking for new ways to reduce reliance on traditional assets include:
Another online metaverse platform, Roblox allows users to create alternative world and share with other gamers. Today, Roblox has nearly 50 million active users every day. However, the company itself is not on the same level as Meta and hasn’t yet made a profit.
Boeing plans to improve and expand its production capabilities by using the metaverse. This means, according to an interview with Reuters, the creation of a proprietary digital platform allowing robot, computer and human employees to communicate in real time seamlessly, wherever they are.
NFTs and metaverse tokenisation
There are also a number of platforms springing up to sell digital assets in the form of non-fungible tokens (NFTs).
Platforms include Decentraland and The Sandbox are currently selling NFTs that operate on blockchain networks and can be used to represent all kinds of real life and digital assets.
Assess risks before making an investment
Before even considering investment into any of these alternative assets, Tom Keya emphasises it’s vital to ensure that a number of key principles are adhere to.
Family offices or any other individual considering investing in technology as outlined in this piece, must ensure they have the correct team working with them.
Accountants and lawyers like Tom Keya should be involved at every step of investing in any kind of digital asset.
Regulatory changes will catch up with demand over the next few years
Demand for improved legislation for cryptocurrency investment is increasing, and there are far more laws now in place to make advertising crypto and other technology more accountable.
Cryptocurrency remains a fast and efficient way of transferring money. But only ever allow exposure to this growing market by working with experienced and verified business investment funds and companies.
When considering investment into security tokens and crypto platforms, it’s essential to demand full legal checks to get it exactly right.
We will undoubtedly see more and more investment decisions from HNWIs, family offices and other investment decision makers within the digital space. Tom Keys puts strong emphasis on the fact that this is a burgeoning sector and will only expand much further much faster over the next few years.
As central finance reporting continues to create the regulatory infrastructure necessary to make investment safer, the market will further expand. And any successful family office, funds, or other investor that values longevity will be one step ahead.
About Tom Keya
Tom Keya is a business executive, founder, expert on law firms and a passionate supporter of the need for systemic change in the way that mental and physical health of employees is supported. Tom’s work encompasses business development, and he believes that it is his responsibility in improving mental health support and awareness in the workplace.
As a member of the Impact 17+1 Club, Tom Keya regularly communicates with like-minded business leaders from many different sectors. Altogether, they raise awareness of the urgent need for impact across the board. As well as philanthropic and strategic work in this sector, Tom regularly communicates through various online publications on mental health issues in the workplace and several other topics.
Having spent decades leading a legal life and as a former business development consultant, Tom is now on the mission to replace barriers in the workplace with better mental health support. He wants to change the conversation from ‘stress management at work’ as this sends the wrong message.
Learn more about Tom Keya here.