FinEX Asia is the first fintech asset management company connecting Asian investors with global investment opportunities in US consumer credit and private equity. Asia Asset Management (AAM) interviewed with FinEX Asia Co-Founder and President Angie Lin to share FinEx Asia how to bring deals and investors together in November issue.The following is AAM article.
Forming a bridge
By Paul Mackintosh
FinEX Asia brings together deals and wealthy investors
FinEX Asia describes itself as the first global financial technology (fintech) platform connecting professional and institutional Asian investors with high-quality, low-volatility asset classes. Asia Asset Management (AAM) spoke to Angie Lin, co-founder and president of FinEX Asia, about the firm’s structure and focus, and its approach to the private equity space.
Angie Lin: Asia is one of the most fast-growth areas in UHNW [ultra high-net-worth] and HNW [high-net-worth] individuals. They invest in several different areas, following their own investment strategy, but also through various institutions. Investment structuring is rooted in their minds – it’s not like they invest only for the sake of retirement.
Asians generally have this passion for getting involved in growing their wealth and their investments. It’s good to take advantage of that trader mentality, but where to apply it? Asian investors invest in their backyards, but face hurdles to investing overseas, for example in Australia, Europe and the US. There are different regulations, different tax structures and requirements, different market access barriers; the most important thing for them is the language, which becomes one of the biggest barriers.
The second biggest barrier is how to convert or transform those investment and market opportunities into forms that are easily understood by Asian investors. It’s not an issue of access: they do not understand them the way they understand the local financial products. We started FinEX Asia to capitalise on the need for Asian capital to invest in good quality investments, not just in Asia, but globally.
What do you see as the investment trends in private equity among Asian investors, in particular in the private wealth management/HNW segments?
Lin: The area is actually composed of a lot of different countries. Chinese investors have a Chinese mentality. Hong Kong is probably one of the biggest offshore booking entities for Chinese investors. Singapore is basically more Southeast Asian. Japan, Korea, and Taiwan have their own feel and their preferences.
Our figures for the total investable assets held by Asian HNW individuals (defined as those with investable assets above US$1 million) show that in 2017, the biggest amount was still in Japan, at around $7 trillion, while China was the second largest and showing the fastest growth, at around $5.7 trillion, and Hong Kong was around $700 billion, with Taiwan around another $450 billion. The Greater China area is the biggest in UHNW individuals. If you take Japan into consideration, it’s a huge capital pool.
We do see a growth trend in private equity in the past five years. Growth in this region in the past five years has been phenomenal as everyone knows, especially in China. That market growth and capital inflow have thrown up many entrepreneurs who started their own businesses – the so-called new economy of companies founded in the past ten years – many of whom have exited in the past five years. They have this entrepreneurial spirit, and some of them take that into trying to grow their wealth to the next level. That environment triggers a lot of entrepreneurs to become successful, but also many look at it as creating investment opportunities and investment needs.
Asian investors have this very interesting mentality. They are actively involved in their investments, not just because they want to get rich, but they want to do something either for themselves or by themselves. You start to see a lot of people wanting to understand private equity investments more, and wanting access to the direct investment model.
The typical institutional route for these investors to get their hands on direct investments only gives very limited access. They could invest in private equity funds, a very big regional or global fund, where the GP [general partner] calls the shots, and they don’t have much control and visibility of what they put out. Another way is to go to their private bankers. But to be granted direct access to deals, investors cannot be just HNW. They have to be UHNW to be offered that kind of investment opportunity. They still see enquiries coming from everywhere, but they are trying to find where they can get their hands on these opportunities.
Private equity investment in the region, and fundraising, especially in China, have been growing every single year. Only recently has this started to slow down. Private equity valuations in this region are growing probably no less than fundraising. That proves that people are more than willing to understand what direct investment is all about, and that capital is ready to inject into these private equity-backed companies.
What are the current pain points of private equity investment?
Lin: The biggest pain point is access. In the private equity world, in order to get access for the right investment, there are several plays. If you are a HNW, the only way you can go is to go to somebody you know who happens to work in this segment or knows about it, such as a business owner. The normal way is to go through your bankers. Regionally, there are private bankers who can offer some investment opportunities, but the reason why it’s difficult for the HNW individual to do direct investments is that you need to have scale.
A company that is doing fundraising won’t go to somebody that has only $1 million in investable assets, because the maximum they’re going to invest is probably $200,000 in order to achieve their portfolio diversification. In its fundraising process, the company will prefer to speak to somebody with $10 million or above. They are probably going to have the opportunity to get $1-$2 million from that individual. But who and where are they? The only way to find them is to go via the private banks.
The investors, meanwhile, don’t know where to get these deals. For example, we concluded an investment in JD Logistics. Everybody knows that JD.com is a very big company and brand in China. Also everyone knows that they’re carving out their logistics business to do a fundraising. We could potentially take the opportunity to invest in JD Logistics if they leave JD.com. But how and where to invest? That’s the biggest pain point: where to go, even with such a well-known opportunity? The investors want to be shown. Searching for the deals and accessing the deals, and having a team able to do the due diligence to evaluate the deals, is the biggest pain point right now for all the HNW individuals
What are FinEX Asia’s plans and how does it aim to serve the investors better?
Lin: When we do a private equity deal, the majority is in two stages. The first one is the deal access. With different stages, different companies, different opportunities, we need to be able to bring those deals and access to investors. When we show them these deals, we need to have professionals in the team who can do the due diligence. Why this company? What is the competitive advantage? What sort of service are they providing? It’s a long process, and definitely requires a lot of professionals to do due diligence and risk management.
Then, once the deal is concluded and the investment is made, we need to do the actual investment management. Normally when a HNW individual gets shown opportunities, they could put their money in through their private bank, but they have to trust the bank to do the due diligence and risk management for them. Then how do they do the after-investment management? These are where Fin EX Asia can add value for the investors that we represent.
We don’t create investment products. For private equity, the founders of the companies create that. What we do is try to bring the investment opportunities in a form that bridges the initial perception that these are very expensive opportunities, or it’s going to be a pain to do the after-investment management. What we are trying to do is take away those pre-conceptions in people’s heads, and offer the opportunities to get their hands on such investments. But investors have to be qualified. This doesn’t necessarily mean that they have the requisite capital: qualified means that mentality-wise, they do want to invest into companies like that, and do have that entrepreneurship and active approach to investments, and that they do trust professional teams when they are shown such opportunities.
As long as your mentality and investment experience qualify you, you shouldn’t think it’s going to be very expensive. No financial service provider should think they should only serve a specific type of investor.
To read more : https://www.asiaasset.com/aam/2018-11/1118_FT.aspx