Due to government restrictions and social distancing recommendations, all our networking events in Tokyo, Singapore, Hong Kong and Australia are currently on hold. We are monitoring the situation and hope to be able to resume our event schedule soon.
Monthly Archives: December 2020
In Tokyo, Akebono Asset Management is merging with Asuka Asset Management to become Aizawa Asset Management from 1st February 2021. Asuka was originally established as the Japan office of Tudor Investment Corporation. The new firm’s ambition is to become the best alternative asset management company in Japan. The management team of the merged company is based on the management team of Asuka and Naoi Niijima of Aizawa Securities will be invited as a director of the merged company. Akebono’s CEO and CIO Shinichiro Shiraki (pictured above), a former Chairman of AIMA Japan, will be appointed as the representative director and president. Toshihiro Hirao, Representative Director and President of Asuka, will be the director and chairman and also serve as the new firm’s chief investment officer.
Elisabeth Thom in Singapore, as previously reported, recently left Flowering Tree Investment Management. She has now joined Niatross Investments in a business development role. Niatross Investments manages long-only, absolute return investment funds focused on Pan-Asian equity markets, with the investment management team located in Hong Kong. She spent more than 11 years at Flowering Tree, where she was a Partner, and previously worked at JL Capital and Ferox Capital Management. Following her graduation from the University of Oxford, she started her career at Goldman Sachs.
Eurekahedge: Hedge fund managers recorded their strongest return since 2009 and were up 4.50% in November, supported by the strong performance of the global equity market as represented by the MSCI ACWI (Local) which generated 11.63% return throughout the month. On a year-to-date basis, global hedge funds were up 8.09%, with more than 40% of its underlying constituents having underperformed the global equity market over the first 11 months of2020. Assets under management for the global hedge funds industry have rebounded increasing by US$128.0 billion over the past eight months since March 2020. This has come from performance-driven gains of US$139.8 billion and net investor outflows of US$11.8 billion. This marks a sharp recovery following a US$264.1 billion asset decline in Q1 2020. The hedge fund prime brokerage industry continues to be dominated by major US and European banks. As of October 2020, the top three prime brokers based on AUM collectively oversee over 40% of the total industry AUM. In 2008 the top 10 prime brokers oversee roughly 68% of the industry AUM, while in 2020 the top 10 prime brokers dominate the market, leaving just 14% of market share for the other prime brokers.
Martin O’Regan of Solas Fiduciary Services was recently announced as the inaugural Chairman of the newly established Singapore Fund Directors Association (SFDA). HFC’s Stefan Nilsson decided to check in with Martin to find out more about SFDA.
As the alternative investment industry in the Asia-Pacific region matures, independent fund directors have become crucial as part of an institutional-quality set-up required by sophisticated investors. Is this why the SFDA has now been launched?
With the launch of VCC in Singapore and OFC/LPF in Hong Kong, we are seeing a trend towards onshorisation of fund structures in Asia. That coupled with the increased regulation in Cayman and other jurisdictions, I felt it was an opportune time to have a body to represent fund directors. The Singapore Fund Directors Association (SFDA) is an industry-driven initiative established to create and support an ecosystem within Singapore’s financial industry for fund directors. The SFDA is the fund director’s destination where they will be part of an ecosystem and community peopled by thought leaders, experts and service providers in the fund investment sector from Singapore and other countries. Singapore remains on track to be the financial hub of choice in Asia. The SFDA will augment this position with a membership of fund directors based in Singapore and the region.
I think you are an obvious choice as the inaugural Chairman of SFDA. You are a seasoned professional with international experience from major finance houses and now leading your own world-class firm. But SFDA is not a one-man show. Who else is in SFDA’s leadership?
With over 25 years of industry experience each, I have assembled a strong committee, consisting of myself, Robert Grome, Hugh Thompson and Soek Khim Chang. Robert was previously Asia Pacific Leader of the PwC Asset Management Industry Group until 2014 and since then has been serving large fund boards in Asia in different asset classes. Hugh is the Global Head of the Maples Group’s fiduciary services business. Having worked in banking and fiduciary services, Hugh has extensive experience of a wide range of financial products and offshore financing vehicles. He has been involved in the closing and subsequent administration of numerous offshore structures including securitisations, CLOs, trusts, hedge funds, asset finance and private equity funds. Khim’s previous role, spanning over 20 years, was Head of Dealing at a large Singapore based fund manager. She managed executions across 25 countries with an AUM of USD4bn. For myself after a long career globally in fund administration, I have been a full-time independent director for the last seven years. SFDA will develop subgroups and working groups to promote and tackle industry issues and work with regulatory authorities on governance initiatives. SFDA will be reaching out to the fund community to encourage members to join.
How will SFDA support the recruitment and development of new entrants to the fund industry in Singapore?
The SFDA intends to support independent directors in Singapore by diversifying and strengthening the development of talent in the financial services sector. We will do this by providing a platform for personal development, exchange of information and learning and building a network for their members. One of the key areas will be education and knowledge. We will facilitate this by authorising and organising high-standard continuing professional development programmes for fund directors and upgrade training for potential directors; developing and promulgating among members the standards, rules, disciplines and guidelines regarding fund directors’ conduct, integrity, and responsibilities; establishing a system of accreditation for directors; keeping abreast of world trends in corporate governance as well as fund directors’ practices; and providing members with value-added services, benefits and regular activities to facilitate networking opportunities.
Are the days of non-exec board directors in name only over? Will we now see boards becoming more professional by having fewer “yes-men” and more independent professionals asking the appropriate questions at the right time?
In the past, independent directors played a passive role. Now with regulators putting more stringent laws, proper governance is mandatory. Hence the role that Independent directors play is vital and diverse. Independent directors provide an oversight function for investors over the fund manager and other service providers to the fund. They act as agents for fund investors. They bring impartiality and experience to a fund’s board and its oversight of the fund’s affairs and activities. The comfort of independence for investors is that you are acting on their behalf; transparency and transparent reporting are what regulators look at. We can see a global trend of more regulation, transparency and independent reporting required for regulated funds. In my opinion, if you want to play in the mainstream going forward, “yes-men” will not work.
What about the issues with directors for hire that sit on too many boards? Should investors worry when they find out that the fund, they invest in has a director who sits on another 100 fund boards or more? Is that a major issue for our industry?
Again, as mentioned earlier, historically independent directors in the offshore space were low touch, passive roles with little or no regulation. In Dublin and Luxembourg fund directors are now regulated and the number of mandates a director is allowed to onboard is restricted based on either the number of clients or the number of mandates a director is allowed hold. That trend is being looked at in Cayman, Singapore and Hong Kong and in the medium term, those jurisdictions will also regulate independent directors that sit on regulated funds. The concept of jumbo directors sets the wrong tone in the industry and the days of holdings 100+ mandates will be over within the next 3-5 years in most if not all jurisdictions.
How do you think the ongoing global pandemic has impacted how fund directors work and how investors are able to do due diligence on directors and funds?
As new regulations and shifting market trends envelope us due to the pandemic, the best way forward is to be prepared. A fund director needs to dedicate significant time and effort on setting up software, cloud platforms and implement an extensive cyber monitoring programme. You need to get the right balance of working in the office and remotely, regularly testing of BCP, cyber monitoring and proper infrastructure will pay off in the end. Directors will need to spend time beefing up their legal documents, policies and procedures, manuals, etc. as in a post COVID environment due diligence on those features will be extensive.
SFDA is Singapore specific. Have you had any thoughts about developing this into a regional power across Asia-Pacific?
While we initially have set up in Singapore, a focus for SFDA is local and international relations to augment a major consultative status and a voice from the fund’s community to government, regulatory authorities and service providers on corporate governance issues; to be recognised as the authoritative advocate on behalf of fund directors in Singapore and beyond; to work in close association with other professional bodies for the betterment of Singapore; to become an essential partner to equivalent associations in other countries in the global promotion of good corporate governance; to integrate and communicate with the various sectors of the public to achieve an awareness of the SFDA’s roles, mutual understanding, and acceptance.
For more information about the SFDA, please visit: www.sfda.com.sg
One of the best-known persons in Asia’s alternative investment industry, William Ma currently serves as Chief Investment Officer of both Noah Holdings and its asset management arm Gopher. Prior to joining Noah in 2015, William built a solid reputation through his roles at Penjing Asset Management, Vision Investment Management, Gottex Fund Management and HT Capital Management.
A year into the global pandemic, what has been the most important investment lesson for you in 2020?
Focus on the long-term investment objective with robust risk management and liquid portfolio profile, backed by long term investors with a similar investment philosophy. Invest in fund managers that you trust for a long time with high conviction and help them to solve any problem they might have in volatile periods. Besides diversification, investment globalisation is the second free lunch. We will continue to see its benefit in a de-globalising world.
What are your expectations for 2021?
Markets continue to be volatile but in general, we are positive on equity markets, growth assets and China. Our portfolios have been close-to fully invested in most part of 2020 and will remain so in 2021.
You are the CIO of both Noah Holdings and its asset management arm Gopher. What fund strategies are you currently seeing the most interest in and why?
Noah is one of the largest independent wealth management companies in China with USD 80 billion AUA, and according to AMAC, Gopher is the largest multi-asset, multi-strategy alternative investment management company in China with USD 25 billion AUM. We are seeing opportunities in new domestic China alternative investment strategies due to continuous opening up of the market and availability of new investment tools. For example, we are very constructive on the China multi-strategy hedge fund and see great opportunities in different sub-strategies such as Chinese Convertible Bond Arbitrage – 2019 new Chinese convertible issues are equal to the sum of 2013-2018, which is the same as the total size of 2019 China A-shares new IPOs, a very liquid market with daily turnover at peak equal to 70% of China A-shares. Managers are able to generate high Sharpe return (3x) and alpha (8%) due to the unique characteristics of the CB terms, such as downward conversion price refix. Also, Chinese Volatility Arbitrage – there is increasing popularity of structured products among retail investors. This creates an abundant supply of new investment tools such as options and derivatives for long or short volatility and volatility arbitrage strategies.
A few months ago, you joined the board of the CAIA Association and the Standards Board for Alternative Investments (SBAI) Asia Pacific Committee. How important are these organisations here in Asia as the alternative investment industry matures?
I am very excited to join the CAIA Association global board and SBAI Asia Pacific Committee, in particular at this point for the China market. The domestic China alternative investment industry AUM has recently reached a new high of US$2.5 trillion, which is close the total size of the mutual fund industry in China. This explains the importance and popularity of the alternative investment industry and products to Chinese and global investors. In this high growth area, I believe the domestic Chinese as well as Asian market participants have been actively adopting global standards. Hence, being involved in both associations allows me to facilitate the Asian alternative investment industry in further adopting global standards, as well as help global regulators and allocators to understand each individual Asian market’s practices as they could be quite different.
Professionally, you have one leg in Hong Kong and one in mainland China. What do you think is the future of Hong Kong as a financial and business hub?
I trust Hong Kong will remain a very important Asian financial hub, in particular to the China market. In 2020, the southbound flow to the Hong Kong market is US$82 billion, which is more than 2x than in 2019. Besides capital flow, there is increasing demand from domestic China asset management companies to set up offshore businesses and Hong Kong is one of their favourite locations. On the other hand, given the strong uncorrelated growth in the domestic China market and appreciating RMB, we are also seeing strong demand from global allocators to invest in the China market, both for the growth as well as the alpha opportunities in the alternative investment industry. I believe Hong Kong will play an equally important role in facilitating global investors investing in China through programs like northbound stock connect and mutual fund recognition. Hence, I am very positive about the future of Hong Kong as a financial and business hub in the region. Noah group will continue to increase the business investment in Hong Kong, expanding our team of 120 professionals in the Hong Kong office, in particular, to capture the new opportunities in the Greater Bay Area with US$1.7 trillion GDP versus Japan US$5.4 trillion, India US$2.6 trillion, Korea US$1.6 trillion and Indonesia US$1.1 trillion in the region.
John Sharp in Singapore is a Partner at Hatcher+, a next-generation, data-driven venture firm that uses AI and machine learning-based technologies to identify early-stage opportunities in partnership with leading accelerators and investors, worldwide. Hatcher+ has teamed up with the First Degree Global Asset Management fund platform in Singapore for its H2 Fund.
The worlds of hedge funds, private equity and venture capital have become blurred. Public and private markets and various investment styles are being mixed. Can you describe where and how Hatcher+ fits into the alternative investment space?
We designed the Hatcher+ venture investment strategy to fit the space between non-venture alternative strategies, including private equity, and traditional, higher-risk venture investment funds. In designing our strategy, we wanted to avoid swinging for the fences, in either direction, within the confines of a small portfolio, and instead favour a data-driven, very large portfolio strategy, based on substantive analysis. Our research, which took three years and included an analysis of over 600,000 venture events spanning 20 years, shows conclusively that our strategy is capable of delivering consistently good returns from venture with reduced risk.
What drove you to found Hatcher+?
We came up with the Hatcher+ strategy in response to our earlier experience investing in early-stage start-ups, both as angels, and institutionally, via our first investment vehicle (Hatcher H1), which we founded in 2013. During the time we spent investing that first US$20 million we raised, we were constantly reminded of the qualitative and subjective nature of our work and became more and more aware that venture capital was lagging other asset classes in terms of technology adoption. This, combined with some early research data that showed an overwhelming preference by LPs to invest in larger, more diversified portfolios, let us adopt a data-driven approach for Hatcher+ and the H2 Fund. Hatcher+ research shows that 67% of venture AUM is invested in managers that have greater than 500 investee companies in their portfolio.
Hatcher+ is using artificial intelligence and machine learning technologies to identify early-stage investment opportunities. I understand that you have built a lot of proprietary tech to run the investments and your firm. How important is cutting-edge tech to an asset manager like Hatcher+?
The bulk of our deep learning efforts have actually gone into understanding how we can modify portfolio construction theories to do a better job of capturing positive returns on a more consistent basis. To date, we’ve created almost four billion virtual portfolios, ranging in size from 10 to thousands of portfolio companies, across virtually all sectors, investment stages, and geographies. We’ve also spent a lot of time looking at how we can do a better job of project selection and performance analytics, and in January we will be rolling out the next version of our VAAST (Venture as a Service Technology) platform, which will enable investors to utilize our AI-powered analytics and process automation as part of their operations. We’ll including, for the first time, an Impact Readiness score, which will enable VCs looking to build portfolios based on impact investments to get an early read on opportunities we identify. In terms of how important technology is to venture fund managers, typically, it hasn’t been important at all. It’s, unfortunately, a truism that most venture investors spend less on data and technology than the average start-up – whereas large investment banks and brokerage firms spend millions, or even billions, on data analysis and automation. We have adopted a similar approach to the large banks and brokerage firms – and in the past three years at Hatcher+, we have spent over US3m a year building data models and automating our business processes, in support of the massive scale that our research data shows is required to win in the venture space.
What is Hatcher+ doing to make your style of venture capital more in line with what alternative investment allocators want and need? Are you facing pressure from investors and startup founders to evolve more in certain areas of your business?
Alternative investors I’ve spoken with have long eyed venture as a potential place to increase allocations – but picking winners among the wide range of different fund managers and strategies is hard. Most people that run venture funds are of high intelligence, and with a strong history of personal success, prior to entering the venture industry. However, 75% of the time, those qualities do not translate into consistent returns, or even returns capable of beating the Nasdaq. Our strategy, which some have termed “The Moneyball of Venture”, relies less on personality and subjective decision-making and more on quantitative analysis and the underlying probabilities that a given basket of investments will yield a power curve effect – or a dozen power curve effects. Where we see venture going is more of a hybrid model, where firms like ours will source and diligence deals and create large pools of high-quality startups, which our investors can use of feeder-funds for their own direct investment. We know from our discussions with family offices, corporate venture groups, and institutions, that many have plans to start their own direct investment firms within the next five years. Those firms will need deal flow, data analytics, fund structures, reporting capabilities, and a host of other services. We see it as our mission to create the deal flow and services necessary to help them succeed with these efforts.
Where do you stand on investor liquidity? Historically, the illiquid nature of PE and VC funds have caused some investors to prefer hedge funds and other more liquid strategies.
The historically illiquid nature of venture is one of the areas I have personally focused the most on. A ten-year lock-up is great if you’re an insurance company, and just want to invest capital and come back in ten years and find more waiting for you, but it’s less appealing to many other investors – especially those that are active in the direct markets. However, as we’ve seen historically in the bond market, for example, lockups only exist to the extent that derivatives (and secondaries) don’t. We’ve taken the first steps towards creating a liquid market for venture-based securities be creating an exchange-traded note, which is currently traded on the Wiener Bourse, and secured by units in our H2 Fund. We expect the market for derivatives will grow significantly in the coming years, with token-based offerings leading the way, especially as larger portfolios, such as ours, begin transparently reporting index-style returns.
Hatcher+ has been actively investing in the fintech space. A lot of the action in the fintech space has been focused on consumer and retail solutions such as payments. Have you also invested in or considered any fintech solutions for hedge funds and other asset managers?
We have successfully invested in payments (Telr) and trade finance platforms (ASYX) – because we like the growth available in the emerging markets these players operate in. The one caveat about investing in fintech in emerging markets is the time needed to get regulatory approvals – but both these companies seem to have navigated those steps very well. The Hatcher+ VAAST (Venture as a Service Technology) Platform remains by far our largest investment in the fintech space. It provides a complete suite of white-label-ready venture capital functions and analytics, and any family office, CVC, or institution can be onboarded within minutes.
What kind of people are you recruiting to your firm? Are you focusing more on quants and techies than people with finance backgrounds?
When it comes to hiring, we hire more data geeks and programmers than finance people – I think that old canard of the brokerage that had 10 developers in 1990 and 1000 sales guys that then flipped to having 1,000 developers and 10 sales guys is pretty accurate for what is happening in the venture capital industry. This is an industry that has lagged pretty much every other asset manager for decades, in terms of investing in technology and scale, and is only now waking up to the fact that risks can be much better managed, and returns made much more consistent, by using data to drive portfolio design, and business process automation to manage the fund. We may be one of the first, but I don’t think we will be the last firm to go from spending US$30,000 a year to spending over US$3m a year on data and tech. This is going to become an arms race, with data and deep learning models – and global access to deal flow – as key determining factors as to who wins.
You have opted to run the business from Singapore. What made you base the business there?
Singapore has emerged as the best place to set up a venture investment firm for a whole host of reasons, not just limited to the ready availability of capital. The legal and financial infrastructure is superb, the regulator is forward-thinking, the venture structures, such as the VCC structure, are well-thought-out and the whole place just works really well. Add to that the fact that it is one of the best-connected and respected countries, with one of the highest educated workforces and highest standards of living in the world (with among the lowest rates of taxation!) – and that combination is pretty hard to beat!
Takatoshi Yoshizawa in Tokyo has been promoted to Head of Institutional Business Department at Astmax Asset Management. He joined Astmax earlier this year following stints at AXA Investment Managers, HSBC Global Asset Management, PIMCO and HC Asset Management.
Kazushige Kobayashi, who retired from Capital Dynamics earlier this year, has been appointed Managing Director of MCP Asset Management in Tokyo. Earlier in his career, he worked at Alternative Investment Capital and Mitsubishi Corporation.
Hospital Authority Provident Fund Scheme (HAPFS), Hong Kong’s largest private pension fund, has appointed one of its existing board members, Philip Tsai, as its new Chairman. He was until recently Chairman of Deloitte China. HAPFS manages HK$68.2bn.
Martin O’Regan of Solas Fiduciary Services has been named Chairman of the newly formed Singapore Fund Directors Association.