What challenges and opportunities will 2022 present for funds, private equity and venture capital?

The AsiaHedge Forum was a half-day virtual event which brought together senior executives and leaders from within the APAC hedge fund community to discuss and debate the latest issues, challenges and opportunities facing the sector. The AVCJ Asian Private Equity & Venture Forum is an event connecting the global private equity and venture capital community with insightful presentations, thought-provoking discussions and valuable interaction.

At the AsiaHedge Forum Marc also moderated a panel discussion titled “A year in review with HFM’s Billion Dollar Club funds” alongside panellists Alvin Fan, CEO of OP Investment Management Limited, Anant Jatia, Founder of Greenland Investment Management and Rajat Bhatia, CEO of Neural Capital, to discuss the competitiveness of the current hedge fund environment and the ongoing challenges and potential opportunities faced by the industry.

KEY TAKEAWAYS

Across both of these events there was much discussion of how participants in the alternative asset management industry have navigated the past year, and what a year it has been. Themes included the continuing COVID pandemic, lockdowns and travel restrictions, supply chain stresses, vaccine rollouts, negative real interest rates, massive fiscal stimulus, Reddit-fueled meme stocks and short squeezes, labour market recovery, record highs in financial markets, inflation concerns, the continued rise of ESG and impact investing, dislocations in energy markets caused by the stresses of shifting away from coal and towards greater reliance on carbon-neutral energy generation, SPACs, debt default concerns around the Chinese real estate market, a continuing focus on US and China relations, Tesla and the rise of the EV industry in Asia, AI and machine learning, cryptocurrencies, non-fungible tokens, and talk of the Metaverse.

Experiences within our own legal practice over the course of this year have certainly touched upon a number of these themes. Our funds practice has seen huge interest in fund launches for investment in cryptocurrencies, and more recently for longer-term investments in other blockchain related assets including non-fungible tokens. We have seen continued interest in both ESG and diversity, where more institutional investors are requiring funds to implement frameworks for the consideration of these factors in making investment decisions. For example, we have recently been involved in a proposed fund launch to undertake Asian venture capital investments in businesses related to the electric vehicle ecosystem including semiconductors and battery technologies.

More widely, the Hong Kong office has been a very active participant in SPAC transactions during the course of this year, but there are those who believe next year may see a slowdown in new issuances in that space. We have begun to see an increase in the pipeline of potential debt-restructuring work and expect this to continue into the coming year. This could also provide opportunities for distressed debt investors.

There seems to be optimism that money will continue to flow into hedge funds, private debt, private equity and real estate next year as inflation may lead broader stock indexes and bonds to underperform.

Hedge funds, including those in Asia, may be poised to outperform in an environment where the US Federal Reserve’s tapering of its asset purchases, and thereafter interest rate tightening, will spur greater market volatility both in the US and globally, due to the enormous size of US markets and the global role of the US dollar.

The continuing opening of financial services markets in China is also going to be something very closely watched here by the asset management community in Asia as we move into 2022. For example, the recently announced approval from the China Securities Regulatory Commission for Goldman Sachs to take full ownership, by acquiring the remaining equity interest in their Goldman Sachs Gao Hua Securities Company Limited joint venture that they did not previously own.

In any event, 2021 has been a year we will all remember for many years to come but we look forward to 2022 with much optimism. Hopefully, more in-person events, more travel and more opportunities for us all to grow our businesses here in Asia. Whatever 2022 may bring we will stand ready to help our clients as they embrace it. In the meantime, wishing everyone good health and a wonderful festive season with their friends and family.

APPLEBY

Appleby’s Funds & Investment Services team in Asia predominantly practices Cayman Islands, British Virgin Islands and Bermuda law, and advise on fund formation and ongoing operation for all types of offshore investment fund structures across the spectrum of alternative asset classes – private equity, hedge funds, venture capital, real estate and infrastructure.

For more information please contact Marc Parrott or your usual Appleby contact.