Global Investment Perspectives: Family Offices Embracing AI and Blockchain Technology
Hyla Fund Management
California-based manager of award-winning digital assets and blockchain funds of funds since 2017.
Market Analysis:
Over the past week, Bitcoin and Ethereum have experienced notable movements in the market, driven by several key events. Bitcoin surged past $65,000, fueled by strong inflows into Bitcoin ETFs and China's economic stimulus efforts. This rise also coincides with speculation that the U.S. Federal Reserve might cut interest rates soon, potentially supporting risk assets like cryptocurrencies.
Ethereum has also shown strength, with a weekly gain of over 16%, outperforming Bitcoin in daily gains during the Token 2049 conference. Ether has been trading in the $2,500–$2,650 range, showing resilience despite market volatility. The broader market remains cautious, but sentiment around both assets is improving as traders anticipate a possible breakout for Bitcoin in early October - late Q4.?
In the past week, Shiba Inu (SHIB) surged by 49%, fueled by strong community engagement and developments in the Shiba Inu ecosystem, particularly the launch of Shibarium, its Layer 2 blockchain solution. This upgrade has significantly lowered transaction fees and bolstered interest. Aerodrome Finance (AERO) also saw a strong performance, rising by 45.52%, likely driven by its innovative DeFi solutions and increasing adoption within decentralized finance. Similarly, Wormhole (W) gained 44.06% as the cross-chain bridge project continues to benefit from rising demand for interoperability between blockchain networks.
Market Overview at the time of publication (according to coincodex):?
Hello Friends,
Over the past five weeks, I’ve had the privilege of visiting six Asian countries, meeting with major asset management firms and family offices to discuss the future of digital asset investment. The region’s level of technical innovation and entrepreneurial spirit has been truly inspiring, particularly evident during events like Korea Blockchain Week, TOKEN2049, and the Network State Conference. These gatherings brought together family offices, venture capital firms, and entrepreneurs to explore the future of blockchain, AI, and other transformative technologies. Thousands of attendees were eager to engage with the latest advancements.
Beyond the impressive technical innovations like Decentralized AI, GameFi, DePIN, RWA, and BTC Layer 2 solutions, what stood out most was how family offices are navigating this new wave of alternative investments. Here's what I observed.
Family Offices: Early Adopters of Tech Innovation
Family offices worldwide are increasingly integrating AI and blockchain into their investment strategies. One of their key interests lies in cybersecurity, driven by growing concerns over data breaches and cyber-attacks. However, they understand that they can leverage AI and machine learning to optimize portfolios, manage risk, and uncover new opportunities—especially in sectors like healthcare, real estate, and finance. The convergence of blockchain and AI is creating new paradigms for data management, decentralized finance (DeFi), and secure communication, offering family offices significant opportunities to enhance their strategies in this rapidly evolving digital landscape.
Real-World Asset Tokenization: A Game Changer
One area that has gained significant attention is Real-World Asset (RWA) tokenization. Family offices are increasingly exploring how tokenization can offer fractional ownership, improve liquidity, and increase transparency across various sectors. As the global alternative asset market expands, tokenization is emerging as a key focus for family offices looking to diversify their portfolios while addressing the liquidity challenges often associated with illiquid assets. Tokenizing assets such as carbon credits, art, and particularly real estate is becoming a compelling proposition.
A significant percentage of family offices around the world hold substantial real estate portfolios, and real estate remains a sound investment for several reasons. Most notably, historical data shows that real estate has been an effective long-term inflation hedge—especially relevant in today's global environment, which is strained by prolonged inflation.
If you're interested in learning why RWA tokenization is particularly appealing to family offices, I invite you to read our previous article: Tokenizing Real Estate: A Digital Revolution in a Trillion Dollar Market.
Navigating the Liquidity Challenge in the Current Market
While family offices continue to invest heavily in illiquid assets like private equity, liquidity remains a significant challenge. Gregory Pool from New Edge Wealth recently noted that "allocations have grown dramatically, but liquidity hasn’t kept pace." Many investors are finding themselves stuck, with little capital returned since 2021, unable to access their money as new opportunities arise. It is very similar to what we observed during the .com bubble.?
This illiquidity, however, also presents a unique opportunity. Family offices, with their long-term investment horizons, are better positioned to capitalize on market dislocations that might deter others. But not all family offices have the luxury of being patient, particularly when new, attractive funds are emerging while liquidity is scarce.
Mike Roffler, board member at LiquidLP, emphasized that "liquidity has completely dried up," making it difficult for investors to balance existing investments with new opportunities. This growing liquidity issue is something family offices will need to manage carefully, especially as they continue to pursue high-potential investments in blockchain, AI, and tokenized assets.
Family Office Sentiment Post-2022: Resilience Amidst Challenges
The events of 2022, marked by geopolitical tensions and rising inflation, posed significant challenges for family offices. Yet, the resilience demonstrated by these entities, particularly in the Asia-Pacific region, has been remarkable. A notable 58% of family offices reported an increase in assets under management, with 22% describing this growth as substantial. This resilience highlights their ability to navigate uncertain financial markets with agility.
As we approach 2024, family offices are recalibrating their strategies. Many are shifting their focus back toward growth after a brief pivot to wealth preservation in 2022. According to a recent report by J.P. Morgan, family offices are now allocating nearly half of their portfolios to alternative assets, particularly in tech-driven sectors such as AI and blockchain. A survey conducted by Campden Wealth reveals that investment management remains the leading priority for these offices. More than 40% of respondents expect returns exceeding 10% this year, a notable increase from the 9% estimated for 2023 and the mere 1% achieved in 2022.
While concerns about the Federal Reserve’s delayed rate easing persist, alongside the implications of the U.S. election and ongoing global conflicts, few respondents foresee a global market sell-off. Over the medium term, risks are primarily perceived to stem from China's relationship with the U.S. and the stability of its real estate market.
“In a world defined by geopolitical and economic uncertainty, family offices have consistently adapted to new realities. There are signs of optimism. For a start, 2024 has shown positive signs of recovery. Inflation in the U.S. is moderating, and GDP growth is aligning with long-term trends. However, challenges remain, particularly within venture capital and certain commercial real estate sectors,” stated Adam Ratner, Director of Research at Campden Wealth.
领英推荐
VC Investment Model: The AI Revolution
Family offices face a key decision when investing: whether to pursue direct investments or invest through funds. Direct investment allows family offices to work closely with the management of the investee company, giving them the opportunity to influence factors such as strategy, ESG policies, and exit plans. However, this hands-on approach requires deep expertise in the relevant industry and comes with challenges like illiquidity, legal complexity, and idiosyncratic risks. As a result, not all family offices have the necessary skill set to manage direct investments and therefore prefer to invest through funds. In North America, most family offices opt for fund investments, whereas in Asia-Pacific, direct investment is the preferred option for most investment strategies.
Whether through direct investments or funds, venture capital remains the most attractive strategy for family offices, particularly when focused on early-stage innovative businesses. In the technology sector, 71% of family offices are drawn to VC, while 65% also find growth strategies appealing. By contrast, real asset and buy-out strategies are notably less popular in the region.
The venture capital landscape is undergoing significant changes with the rapid evolution of AI. The traditional VC model, which relied heavily on human intuition, is being disrupted by AI-driven investment tools that offer a more data-centric approach to portfolio management. This shift is a game-changer for family offices, allowing them to make more informed decisions and explore fresh approaches to VC, particularly in tech-driven sectors.
At Hyla Fund Management, we believe the Liquid Venture Strategy represents the future of VC investment. If you’re interested in learning more about this model, I invite you to explore our previous newsletters: The Opportunity in Blockchain Investment: Liquid Venture Capital and Is Liquid Venture Capital a Superior Investment Strategy in the Blockchain Industry?
The Future of Blockchain and AI in Family Office Investment
Family offices are increasingly optimistic about the future of blockchain technologies. A net 45% believe blockchain will create substantial value, particularly in its potential applications for Web 3.0. Currently, 15% of family offices hold cryptocurrencies, a figure expected to rise as more offices plan to initiate positions in this asset class.
A survey conducted by Campden Wealth shows that 15% of family offices globally hold cryptocurrencies, which is in line with the average of 17%. Additionally, 11% hold cryptocurrency funds, and 8% hold non-fungible tokens (NFTs). Looking ahead, while there is a trend towards rebalancing portfolios, with more offices planning to reduce rather than increase their crypto holdings, it's noteworthy that 9% of those currently without cryptocurrency exposure plan to enter this space soon.
However, this optimism does not always translate into immediate action. Family office investors' perspectives on cryptocurrencies and blockchain technologies are still evolving. Many of the family offices we've spoken with emphasize that education and transparency regarding the practical applications and real-world impact of these technologies are crucial for their increased participation in this space.
Looking Ahead: Investing with Purpose
As blockchain and AI continue to evolve, these technologies are poised to play a pivotal role in shaping the future of investment. The next wave of growth will be driven by those bold enough to embrace innovation, diversity, and change—not by those who play it safe. Family offices are uniquely positioned to lead this transformation, leveraging their flexibility and long-term vision to capitalize on the opportunities emerging in the digital asset space.
A substantial number of family offices are integrating responsible investing practices into their broader strategies. Among those that have embraced this approach, 41% of their portfolios consist of responsible investments, up from 36% in 2023. These family offices anticipate that their allocations to responsible investing will steadily rise to around 50% over the next five years.
Responsible investing is increasingly intertwined with environmental concerns, with the most popular themes among responsible investors being renewable energy (73%), climate solutions (60%), and social equality (59%). For 68% of family offices, a key motivator for responsible investing is the desire to demonstrate that family wealth can be invested for positive outcomes. This indicates a genuine interest in responsible investing rather than simply reflecting the wishes of the next generation (26%).
Moreover, three-quarters of North American family offices engage in philanthropic donations, with the majority exceeding US $1 million. The families' desire to give back to society serves as the principal motivation for their philanthropic efforts, alongside supporting causes with personal connections. Philanthropy is also viewed as a means to put family values into action and engage the next generation. The top philanthropic causes supported by family offices include education (69%), community development (50%), the arts (48%), and healthcare (46%).
Furthermore, Morgan Stanley’s analysis shows that sustainable investment funds outperformed traditional funds by 8.3% between 2018 and 2021, reinforcing the idea that sustainability and financial returns are not mutually exclusive. However, the investment landscape is dynamic; in 2022, traditional funds outperformed sustainable ones by 3%, partly due to shifting views on fossil fuel companies. Despite some skepticism surrounding ESG adoption, only a small portion of family offices (20%) share this perspective.
What does this mean for the blockchain and AI landscape? Most families believe they are responsible for making the world a better place. By embracing the principles of decentralized and inclusive systems, blockchain and AI can significantly enhance the infrastructure and operations within the sectors that family offices are most interested in. This positions these technologies as two of the most significant investment trends for family offices in the coming years.
Blockchain, with its inherent transparency and security features, has the potential to revolutionize industries such as supply chain management, healthcare, and energy. For instance, by enabling more transparent tracking of goods, blockchain can enhance sustainability in supply chains, reduce waste, and ensure ethical sourcing. In healthcare, it can improve data sharing and patient privacy while fostering innovations in personalized medicine. The energy sector stands to benefit from blockchain through decentralized energy trading systems, promoting renewable energy sources and reducing carbon footprints.
AI complements these advancements by driving efficiencies, optimizing resource use, and facilitating informed decision-making. Its applications can be seen across industries, from automating processes in manufacturing to enhancing predictive analytics in finance. In agriculture, AI can optimize crop yields while minimizing environmental impact, creating a more sustainable food supply.
As family offices increasingly allocate around 60% of their portfolios to sustainable investing, the integration of blockchain and AI technologies can amplify the positive impacts of these investments. By ensuring accountability and measuring outcomes effectively, these technologies can foster trust and engagement among stakeholders, ultimately leading to a more sustainable future.
In essence, blockchain and AI not only represent cutting-edge investment opportunities but also serve as powerful tools for driving systemic change across various industries. Their ability to address pressing social and environmental challenges positions them at the forefront of sustainable investing.
Thank you for joining us this week. Stay tuned for more insights into the ever-changing world of blockchain, AI, and crypto!
For questions or insights, feel free to reach out at [email protected].
The views expressed in this newsletter are solely those of the authors and should not be considered as investment advice or recommendations. They are not intended to influence any investment decisions.