January 2017

With Donald Trump’s presidency and other geopolitical hangovers leading the news agenda, in Asia, hedge funds are contemplating the use of robo-advisors in the institutional space and how Fintechs can help with their distribution strategies, while private equity GPs and LPs are weighing up whether artificial intelligence can help boost performance.

Indeed, this focus is hardly surprising given that the region remains at the forefront of technological innovation while responding to macroeconomic climate and geopolitical shifts.  It was therefore, at the Deutsche Bank Alternatives Day in Singapore that the alternative industry in Asia contemplated a brave new world for hedge funds and private equity funds and key themes such as risk, regulation and return. The event, which was also held in Hong Kong, attracted over 400 institutional investors across the two locations – including hedge funds, fund of hedge funds, family offices, endowments, and private equity GPs and LPs, private banks, asset consultants and sovereigns. These investors gathered to hear representatives from Deutsche Bank, partner organisations such as Akin Gump Strauss Hauer & Feld, Eze Software Group, Eurex, as well as key allocators, managers and influencers in the alternative community. Dynamic panels and presentations gave one clear verdict for the industry in an ever changing landscape:  wait and see.

For hedge funds, a panel titled ‘Asian Hedge Funds Outlook: The Good, The Bad and The Ugly’ painted a positive picture of prolonged growth fueled by a liberalisation agenda. This was despite question marks over whether the slowing globalisation agenda in the wake of Brexit and Trump’s US first approach might slow the industry down. China’s 19th Party congress will be pivotal, delegates heard, with South East Asia and Korea expecting to embrace China in a swing against Trump. Meanwhile the People’s Bank of China, says it expects the international use of the RMB will progress steadily in terms of scale and scope, and the RMB internationalisation will play a more positive role in the areas including serving the real economy, enhancing the vitality of international monetary and financial systems. Furthermore, the China-Hong Kong Stock Connect scheme, which provides mutual market access between Hong Kong and Mainland China is also expected to attract global capital flows.  Each market can now trade on the Hong Kong Exchange and the Shanghai Exchange and from December 2016 the Shenzhen Exchange.

Sameen Farooqui, Deutsche Bank’s Head of Fixed Income and Currencies Asia also provided a very brief and valuable overview of the ‘Changing Landscape around Currencies in Asia post August 2015’.

Going forward, hedge funds in Asia should focus on distribution, delegates heard. Banks should look to work with Fintechs in areas where margins are big, was the consensus from the asset management community.  Robo-advice will also continue to be explored in the coming year, given mass adoption by consumers.

For private equity funds, vast gains are also to be made through technological innovations, delegates heard. A Fintech-focussed venture capitalist session explored not only on the role of blockchain but also artificial intelligence in a panel titled ‘PE Funds: Fintech – Fads or Fortune?’  technology continues to impact the financial services industry the opportunities presented by AI of natural language processing such as that proposed by IBM Watson – the cognitive system enabling a new partnership between people and computers – were discussed. Machine learning and deep learning, where machine learning effectively functions like a human brains, also contributed to a lively debate.

 Looking at PE growth, a panel titled ‘Asian Private Equity: A Plateau?’ found that LPs are not rushing into Asia at present as the bar is high and fund exits are low. LPs are instead choosing to co-invest, thus reducing fees. Nonetheless, the sheer diversity of the region for LPs and allocators, and the innovation in deal making amidst divergent rates of return and record levels of dry powder, was noted.

Jagdeep Brar, Head of Alternative Fund Services Asia Pacific at Deutsche Bank, said: “The interest in the alternatives sector continues to be buoyant in a region which offers tremendous opportunities, and where global allocations are still lagging behind the growth potential of Asia.”

Lastly, on regulation, panelists discussing risk, regulation and returns for hedge funds and private equity, agreed that while regulations such as Basel III and AIFMD will continue to shape the industry, the tone will be much more cultural, with regulators moving away from reactive and prescriptive regulations to behavioral accountability; holding individuals accountable and responsible for compliance; with further transparency being demanded.

The impact on forums such as the International Organization of Securities Commissions given Trump’s US-first approach also remains to be seen, delegates heard.

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