With the ability to uncover hard-to-find information and enable more frequent trading in traditionally illiquid asset classes, new technologies like artificial intelligence and tokenisation could be the biggest disruption most private markets investors will see in their lifetime. 

At the Top1000funds.com Fiduciary Investors Symposium, head of research at FCLTGlobal Eduard van Gelderen said the digitisation of private market information that is taking place will have big consequences for investors. For one, data will cost less.  

“There is already a lot of data out there related to private markets. But is it readily available? No,” the former PSP Investment chief investment officer told the symposium in Singapore.  

“Unfortunately, some of those [private market] databases are still very expensive, but the data is there. And the reason why the data is there, is because this whole society is full of sensors. Everything is monitored. 

“It’s a question of time before that data really becomes available.” 

Secondly, technologies will change what investors do with the data. If private markets were to become like public markets with the volume of information available, van Gelderen said the biggest problem for investors then having too much data to make effective investment decisions.  

One thing AI is particularly good at, at least in short-term strategies, is sorting through noise and identifying the underlying market signals, said van Gelderen. 

“If you look at what is available now in practice, but also in academic research, then what you see is that AI is actually a very helpful tool in getting profitable investments strategies in place – alpha generation,” he said. 

Another technology with private market applications that van Gelderen is bullish on is tokenisation – the process of converting an asset or the ownership of an asset to a digital form using blockchain. And there have already been tokenisation experiments in private equity.   

Last year, Citigroup, with asset managers Wellington Management and WisdomTree, completed a simulation exploring how private equity funds can be tokenised while staying compatible with existing bank systems. 

There are several appeals of tokenising private assets, van Gelderen said. Apart from increased liquidity, tokenisation can enable the ownership of small fractions of an asset, which could lower the barrier to entry for retail investors, and allow for faster and automated transaction processes that complete in minutes, if not seconds. 

“When people talk about tokenisation, immediately, they think trading Bitcoins … that respect, I find pretty irrelevant,” van Gelderen said.  

“What is important is the technology of blockchain, and blockchain is actually very dependent on tokenisation.” 

He believes tokenisation will be a key method for boosting trading in private markets in the future.  

“[The likes of] secondary markets, it’s great that it’s there, but at the end of the day, it’s still very traditional. There’s a seller and we have to look for a buyer, and then we start to negotiate stuff. 

“I’m a firm believer that tokenisation will make private markets or private assets liquid going forward.” 

Capital markets continue to be a key battlefield of power between Beijing and Washington, and whether the yuan has a serious chance of taking over the dollar as the international currency is the next big question for the world economic order. 

The struggle is especially evident in developing countries. While the influence of US capital has waned due to the shuttering of foreign aid organisation United States Agency for International Development, China is working hard to increase its presence through programs like the Belt and Road Initiative (BRI).  

At the Top1000funds.com Fiduciary Investors Symposium, Asian law expert and Associate Professor at National University of Singapore, Weitseng Chen, said one unique thing about the yuan internationalisation scheme is China’s “capacity to maintain a dual system”. 

“One system is the US dollar-based system that is the foundation of global capital markets,” he told the symposium in Singapore. “Nowadays, China is the largest beneficiary of globalisation. They try very hard to uphold the current system and blame the United States of breaking down this current system.” 

“But on the other hand, China has established a quite effective alternative [currency] system.” 

This system includes the BRI; the Asian Infrastructure Investment Bank, which is a previous extension of BRI but later broadened its investment scope to unrelated infrastructure projects in Asia; the Cross-border Interbank Payment System that offers clearing and settlement services for yuan; and the so-called ‘dim sum’ bonds issued in foreign countries but denominated in yuan.  

Chen said users of the alternative yuan system are still limited, but its existence provides China with a plan B if it faces Russia-like sanction from the US.

“It’s already proved that [the system] is totally viable and possible,” he said.  

“US sanctions against Russia failed simply because Russia has been able to switch to this alternative platform, it’s quite powerful.” 

Chen said there is also a divergence in capital markets regulations between the two countries despite liberal scholars’ predictions over the past two decades that there would be convergence of globalised capital markets.  

“Convergence indeed happened. If you check out regulations on securities, both in the US and in China, they look surprisingly identical on many regards,” he said. “But this convergence is kind of superficial.” 

For example, investors have to opt in for complex deal structures like variable interest entity (VIE) if they want to invest in certain sectors in China with restriction of foreign ownership, such as technology. Under VIE, Chinese companies looking to list offshore will set up an overseas company, allowing foreign investors to purchase the stock.  

The foreign investor is then deemed as a creditor, not an owner of the company, “with inferior rights”, Chen said, adding that the US market regulator is “tolerating” structures like this because it wants to attract listings in the US. 

But from a legal perspective, these differences could cause global investors woes in periods of geopolitical tension. Overlapping jurisdictions in global markets create fertile ground for “legal warfare” between countries and investors need to stay vigilant. 

“There is an undercurrent…but we just ignore it. When geopolitics doesn’t matter to transactions, it’s okay; but when politics matters now, it is not okay,” he said.  

The global environment in which small Asian economies have thrived over the past seven decades is being dismantled as the US retreats as an advocate of multilateralism, globalisation and internationalism, warned leading geopolitics academic and economist Danny Quah.  

Quah, who is Li Ka Shing Professor in Economics and Dean at the Lee Kuan Yew School of Public Policy within the National University of Singapore, said he is of the view that “Asia remains the future [of global growth], but now it’s a more difficult story”.  

And to understand Asia’s future, investors need to reflect on its past.  

“Most of Asia approaches economic growth and development, and their engagement with the world, as if we are small, open economies. Even the very largest, most populous of us are small in the economic sense,” Quah told the Top1000funds.com Fiduciary Investors Symposium in Singapore.  

“When your economy remains small, you are hemmed in.” 

However, this status has not been a problem for Asian countries in the past 70 years because the world was filled with promises of a level playing field, global co-development and free trade – the region “latched on to” these ideas, Quah said. 

“The grand themes at that time were economic efficiency, comparative advantage – Milton Friedman-esque ideas – and convergence: that as economies grew, politically they would converge to the norms of liberal democracy on the transatlantic axis,” he said.  

“We went about our way…improving the supply side, [it] meant that we were reassured the demand side for us was always going to be there. That’s no longer so obviously the case.” 

Quah said for Asia’s growth story to continue, it is critical that “a variant of that system continue”, or the region will face excess capacity and mounting inventories.  

“Every small economy always produces too much of what its people can [produce], and too little of what its people need,” he said. “And given the trade is an existential need, it is an urgency for Asia’s development.” 

“So if Asia is going to be the future, and we’ve got a world that’s decided to pull back on multilateralism, we really do need to rethink…our operating and conceptual models.” 

Retaining a sense of order 

The reality for most ASEAN countries and some others in greater Asia can be summed up by paraphrasing Greek historian and general Thucydides: “Great powers do what they will, the rest of us suffer what we must,” Quah said. 

“Either China, America or some other great power needs to build the world, if they have decided to step back from that, then we’re caught. Because we have no agency,” he said.  

But there are things small Asian countries can leverage to benefit as the world shifts to a new order. For one, it can strengthen region-based multilateral systems.  

“Multilateralism, as I’ve described, is a level playing field for all of us to engage with everybody else, with clear rules of engagement – a rules-based order,” Quah said.  

“[But] America, the wonderful sponsor of a rules-based order has, for many interpretations, decided to go with a might-makes-right kind of a perspective,” he said, with President Donald Trump’s threats to annex Canada and Greenland.  

“If we can’t any longer have a rules-based order for everyone in the world, let’s build a rules-based order for ourselves,” Quah said. “ASEAN in Southeast Asia is part of that construction.” 

Quah added that he does not yet see great coherence in a China-led order in Asia, although trades with the East Asian nation have benefited the rest of the region.  

“The last century of China’s history has left many of us a fear that China remains a dangerous nation. China went through the great purges of the Cultural Revolution [and] the Great Leap Forward,” he said.  

“The rest of us have never had to experience anything like that. We don’t understand China. China doesn’t understand us. I think it would be very difficult for us to buy into a China-led order.”