How does the financial technology (fintech) industry connect with global capital flows? The answer is private equity investment. Angie Lin, Co-founder and President at FinEX Asia delivered a keynote speech at the Fintech Gloria event on June 7 in Taipei at National Chengchi University, explaining how development in the technology and fintech sectors has improved private equity (PE) investment around the world.
Increasing investment opportunities by engaging in various types of partnerships, such as co-investments, has been the current development trend, but now change is needed to improve the information asymmetry and artificial limit that only large institutions can participate in PE deals.
However, PE investment platforms need even more input from a wide range of experts, including project acquisition, risk control, legal and compliance, financial investigations, legal investigations, financial models, industry knowledge, etc. This is the basis of the information asymmetry, as smaller firms cannot dedicate enough resources to such deals.
Artificial intelligence (AI) has helped unlock the alpha for many asset classes, but PE’s heavy dependence on relationships has left this asset allocation process unchanged. AI can help companies that need financing better understand the prospects, investment experience, intent and timeframes of their investors, while also helping investors gain a clearer picture of companies’ information, financial models and current financing status. Currently, AI is employed in transaction assessment, but in the future, more advanced data analysis may further enhance the efficiency of capital investment.
Organized by the FinTech Research Center College of Commerce of National Chengchi University, the forum supports the Global Research & Industry Alliance (GLORIA), assisted by such organizations as the Taiwan Financial Services Roundtable, Institute for Information Industry and Taipei Computer Association.
FinEX Asia is leading the way in adding transparency and efficiency to the PE investment process. Leveraging our technology platform and strong investment experience, the platform can make PE transactions more transparent. While relationships and access are often stressed in PE deals, internet-based businesses have proven how technology can lower information barriers. FinEX Asia is partnering with Shanghai-based Oriental Pearl (Group) Co., Ltd. in the development of a PE business, which will pool their mutual resources to address these problems.
Growing transaction volumes
PE transactions have grown exponentially in recent years, and in the US, the total investment amount reached US$25 billion in nearly 800 transactions in the first quarter of 2018, exceeding the previous high of 2013. In Asia Pacific, the total investment amount approached US$20 billion in 300 transactions, also a new high. The growing trend in PE investment is especially true in Asia, where huge, untapped financial opportunities are still emerging in multiple markets.
Strong returns from global technology companies have been leading this trend. For example, since their listing, Amazon has created an astonishing 1,800x return, whereas Apple is near 500x. However, the return would have been even higher if investors got in before their respective IPOs. In Apple’s case, the return would have exceeded 1,100x. Such extraordinary returns have enticed insurance companies to gradually increase their PE investment ratios. Last year, their investment totaled US$50 million in the US and over US$25 million in Asia Pacific. Despite multiple successful cases, there have also been several failures. Reducing the failure rate and thereby increasing the chance of success, will require additional information and access to expert opinion.
At present, the development trend of PE investment is to increase investment opportunities via joint investments, which can help address information asymmetry, limited information dissemination, poor liquidity, customized investment advice and investment channels. Through infrastructure reforms, centralizing and employing technologies to effectively transmit investors’ information, as well as creating more efficient investment platforms, the current PE landscape can be opened to a larger array of participants.