How Are High-Net-Worth-Individuals Navigating the Current Crisis?

Family offices, which are private firms that serve ultra-high-net-worth individuals (HNWI), are paying close attention to the ongoing political instability in Ukraine and its potential impact on global economic growth. It will be no exaggeration to say that the world will not be the same after the ongoing war between Russia and Ukraine. This war has pushed oil prices sky high and disrupted the food supply chain. Sanctions on Russia has countries thinking about becoming energy independent, for example, and other ramifications from the conflict.

Lessons Learned from Covid

Family offices have learned a lot from the Covid-19 crisis, which is ongoing even as China has locked down several areas, including its own version of Silicon Valley, Shenzhen, which has a population of 17.5 million. For example, the pandemic accelerated investments in digital technology as huge swathes of people worked and learned from home; it also brought into sharp relief concerns about the supply chain. Still, fund managers know that the current crisis is different because it involves political actors; however, the lesson of 2020 is that they are looking beyond the immediate crisis and are thinking about its long-term effects.

The war in Ukraine has done two things: first, it reinforced the importance of being fully energy independent. This means even higher investments in the renewable energy space. Secondly, it showed that fossil fuels can't be abandoned since alternative energy sources can't fulfill the nation's energy needs yet. As the war began, U.S. oil production and rig counts have skyrocketed as President Joe Biden pressured the industry to increase output. The situation has also opened the flood of financiers for fossil fuels, including from some heavyweights; Warren Buffett, for example, recently invested in Occidental Petroleum.

Saudi Arabia in Focus

Family offices are continuing to invest in Saudi Arabia, because of the massive potential it represents in energy. Sir Anthony Ritossa, at the Ritossa Family Office Conference in Riyadh, said, "there are tremendous investment opportunities in Saudi Arabia, and Vision 2030 is hugely impactful and affects many sectors of the economy."

Obviously, Saudi Arabia is a major player when it comes to oil production, and a major theme that family offices are looking at from the current energy crisis is the new demand for fossil fuel -- Germany and the rest of Europe had been heavily reliant on Russian gas. Beyond oil, however, this need for energy has re-ignited the conversation of developing nuclear energy, along with investing in renewable energy.

All that means family offices need to invest in companies that see the future 20 years from now. Ritossa said, "here in the Middle East, especially in Saudi Arabia, a large number of companies are focused in the renewable energy space as well. Saudi's vision 2030, which includes NEOM, is fully designed with that in mind, and family offices are closely looking at investment opportunities."

Soft Commodities 

Energy isn't the only space that has come under pressure in recent weeks; officials from various countries are concerned about the supply disruption in the commodity space. Ukraine and Russia played a significant role in the wheat supply, and soft commodity prices have skyrocketed in the past few weeks as China has accumulated them. Emerging markets are highly sensitive to soft commodity prices, and family offices are looking even more deeply into companies that lead crop production.

Conclusion

Family offices are navigating the current crisis by looking at what its short-term effects will mean for the long-term outlook in energy and commodities, and are acting accordingly.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Other Topics

Economy Stocks Oil Energy