The 3rd annual Fund Finance Association Asia-Pacific Fund Finance Symposium in Hong Kong on September 25th 2019 recorded over 320 attendees – the highest number ever for such an event in Asia. This is a strong testament to the growing level of interest in the fund finance market. It was both significant and encouraging to see such strong attendance at an international event despite Hong Kong entering its 16th week of mass protests at the time.
Ashurst has been a long-time supporter of the previous Fund Finance Association conferences in New York and London. This year, as Gold sponsors of the Asia-Pacific Fund Finance Symposium, we had in attendance a strong contingent of Ashurst lawyers with Singapore partner Jean Woo speaking on the panel session on Legal and Regulatory Update.
The following is an overview of the key takeaways:
Socio-political issues
- Despite the current political and social uncertainty in Hong Kong, the general view is that the market continues to be healthy and still growing. The US-China trade dispute has not dampened investor appetite as investors are taking a longer term 10-20 year view of the market. Fundraisings continue to be dominated the Chinese investors, in particular the pension funds and corporate investors.
Market trends
- In terms of investment appetite, most are seeing a slight downturn in relation to real estate deals. There is strong interest in the technology space, in particular within the artificial intelligence and digital payments sectors. China and India are particularly busy in the venture capital space with Southeast Asia following closely behind.
Funds formation
- The Cayman Islands has historically been an attractive jurisdiction for Asia-focused funds. A strong track record and familiarity amongst stakeholders have contributed to its continued popularity. In North Asia, it is rare to see an offshore fund domiciled in a jurisdiction other than the Cayman Islands or Luxembourg.
- However, in Southeast Asia, the number of Singapore domiciled fund structures are growing. This is unsurprising as Singapore has been making a strong push to be the key asset management destination for Asian based investors.
Singapore
- Much of Singapore’s push is driven by support from the Singapore Government and a large pool of talented service providers. It was noted that the Singapore Government passed a bill on 1 October 2018 to introduce the Singapore Variable Capital Company (S-VACC), a flexible capital corporate structure modelled specifically for funds based on equivalent established funds structures like the Cayman segregated portfolio company and the BVI protected cell company.
Substance requirements
- The general view is that the growth of the S-VACC should not undermine similar offerings in traditional offshore jurisdictions. More choice from a structuring perspective can only add to the versatility of the fund finance market.
- From a policy perspective, the Singapore Government wants to create an entire asset management ecosystem and address growing concerns of investors in the industry regarding the need to demonstrate substance around their fund structures. Therefore unlike its equivalent in the Cayman Islands, the S-VACC requires the fund manager and service providers (company secretary and custodian) to be based in Singapore.
Diversity of products
- Traditional pure LP-backed subscription line lending is still the most common structure for the Asian market. Net Asset Value (NAV) based lending has not gained popularity outside of the property and infrastructure industry sectors. Hybrid structures (which are the combination of the above structures) and GP/executive support facilities are also not yet common in Asia.
Foreign exchange risk
- Foreign currency risk is a key consideration for most cross-border Asian lending structures. The main area of concern is the currency risk between the time the investment purchase price is agreed and the delivery of proceeds. Separately there is also asset valuation risk when the fund divests its investments.
- Previously, the internal rate of return (IRR) for Asian based funds was high enough that such currency risk could be absorbed. However, with an increasingly competitive market and lower IRR, hedging instruments are becoming a popular (albeit expensive) solution.
Women in Fund Finance (WFF)
- Founded and supported by the Fund Finance Association, the WFF’s goal is to help women succeed through global connections, education and professional advocacy. The final note in this article should go to the WFF for organising yet another successful women's networking event. There is overwhelming consensus amongst attendees that the Breakfast and Fireside chat with the inspiring and modest Judith Li of Lilly Asia Ventures (LAV) was one of the highlights of the event.
