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Buyside (FINA) (Traditional institutional investors (pension funds and…

- - - - 401K
      - IRAs
    - - US Regulation
        
        1949 US Supreme Court decision
        
        pension benefits are legitimate part of collective bargaining
        
        number of plans increase from this as unions negotiated for such plans
        
        Employee Retirement Income Security Act of 1974 (ERISA)
        
        does not mandate that employers establish pension funds for their employees
        
        established guideline for funding: contributions to pension funds must be sufficient to cover all annual costs and expenses and to fund any unfunded historical liabilities over a 30 year period, any new underfunding arising from low investment returns have to be funded over a 15 year period
        
        allowed plan credit transfer with employees
        
        established vesting requirements to gain plan benefits
        
        assinged regulatory oversight to department of labour
        
        ERISA also established the Pension Benefit Guarantee Corporation to insure pension benefits if an underfunded pension plan is unable to meet its obligations
        
        accounting makes it difficult to assess funding status of a plan
        
        may be in trouble as plans appear underfunded
        
        Pension reform act of 1978 authorised individual reirement accounts IRAs
        
        enjoy preferential tax treatment
        
        keogh plans are simiar plans for self employed individuals
        
        Simple IRAs are simplified retirement plans for small businesses
      - The Pension Protection Act 2006
        
        strengthens fed pension insurance system
        
        allows companies to phase out their Traditional Defined Benefit or pther plan and automatically enroll employees in 401k plans, as well as set investment guidlines
        
        makes tax breaks for retirement plans and accounts which were scheduled to expire in 2010 permanent
        
        gives taxpayers the option of direct depositing portions of their tax refunds into IRAs
        
        permits 401k and similar plans to offer investment advice
        
        gives employers seven years to fully fund their plans
    - - social security
        
        Any pension plan set up by employers groups or individuals, funds administered by a private crop
        
        Increasingly dominated by defined contribution plans
        
        Types of private pension plans
        
        401k and 403b: eomplyer sponsorted plans that supplie,ent a firm's basic reitrement plan
        
        individual retirement accounts IRA's and Roth IRAs
        
        Keogh accounts (for self employed and SME employees)
      - mandatory retirement plans
      - 2 types
        
        State or local govt pension funds
        
        set up for state or local govt employees, pay as you go basis (workers that contribute today pays benefits to current recipients)
        
        state and local pension funds held most of their assets in corporate equities
        
        fed govt pension funds
        
        2 types
        
        Social Security
        
        pay as you go
        
        projected number of workers is falling while projected number of retirees is increasing which will cause problems in years to come if not corrected
        
        relatively low risk, low return treasury securities
        
        for fed govt employees, civil service employees, military and railroad employees not covered by Federal Old Age and Disability Insurance Program/ social security
    - - HK MPF
        
        Features
        
        Mandatory
        
        contribute 5% of wage into MPF, contributions are matched by employer (totalling 10%)
        
        Members' choice
        
        employee can choose where contributions are invested
        
        Contributions not available until retirement
        
        portable plan
        
        when changing jobs, employee can transfer to new employer plan or to own MPF
        
        Trustee set up
        
        MPF must be in a trust structure to ensure max protection of scheme members' assets
        
        MPF Schemes, and occupational retirement schemes are regulated by the MPF schemes authority, which is controlled by the govt
        
        structure of MPF: employer selects master trust, in which one part of the constituent fund goes to the capital preservation product, remaining constituent funds can be chosen by members which will be polled into an apprived poolied investment fund
        
        est 2000, privately managed, employment related scheme, regulated by MPFS Ordinance Aug 1995; regulator MPFSA in sept 1998
        
        Employee Choice Arrangement
        
        employees are allowed to transfer their accrued benefits or not to make any change by retaining the accrued benefits in the MPF scheme they are currently enrolled in
        
        Withdrawal choice arrangement
        
        introduction of choice of withdrawal by installments instead of lump sum
        
        withdraw MPF benefits by installments
        
        withdraw all their MPF benefits in a lump sum
        
        retain all their benefits in an account for continuous investment
        
        Default Investment strategy
        
        to address the problems of high fees and difficulty in making choices, each trustee is required to provide a Default Investment Strategy
        
        MPF members who don't select any options will by default contribute into the DIS
        
        2 globally diversified funds: core accumulation fund and Age 65 plus fund
        
        by principal of age derisking, as the when the participant reaches 50, the MPF benefits in the core accumulation fund will be gradually switches to the age 65 plus fund everyyear until it's all in
    - - an asset pool that accumulates over an individuals' working years and is paid out during the nonworking years
      - Multi-pillar retirement system
        
        pillar 2: a mandatory, privately managed, fully funded contribution system
        
        Pillar 3: voluntary savings
        
        pillar 1: a mandatory, contributory and publicly managed system
        
        pillar 4: informal support, other formal social programmes and individual assets
        
        pillar 0: a non contributory, publicly financed and managed system that provides a minimal level fo protection for retirement
      - Defined Benefit vs Defined contribution
        
        DB
        
        a plan where the sponsor promises the employee a specific benefit when they retire
        
        place burden on employers to properly fund the pension payouts
        
        DC
        
        a plan where a set amount is invested for retirement, but the benefit payout is uncertain
    - - new proposal for pension plans in HK
      - MPF losses
      - China's pension and retirement plans
      - impact of crisis
      - Aging population presents critical issues for public pensions
      - Changes in accounting for pensions driving a change in asset allocations
      - Key issue: Longevity risk
        
        longevity risk is linked to the probability that individuals will live longer than the actuarial assumption
        
        Increase in life expectancy raises question for retirement age
        
        global aging and life expectancy increases lead to deepening pension deficits and growing asset liability management gap
      - rising trend of quest for yield driving increase participation of pension and retirement funds in alternative investments
      - trouble for retirement planning, roughly 45% households dont have retirement savings int eh US
    - - several types: deferred/immediate and fixed/variable
      - Annuities are typically sold by insurance companies
  - - - types
        
        unit trusts vs mutual funds
        
        The main difference between the two is in their legal structure. A mutual fund is an investment company that issues redeemable shares while a unit trust, because it is not a company, only issue units.
        
        short term
        
        taxable MMMF
        
        money market mutual funds are registered under the Investment Company Act of 194 and regulated under rule 2a-7 of the Act
        
        MMMF pay dividends that reflect prevailing short term interest rates are redeemable on demand, and seek to maintain a stable NAV
        
        MMF vs MMDA
        
        Money market deposit account is a bank deposit, it's guaranteed and FDIC insured, you'll receive a Truth in Savings form when you deposit
        
        tax exempt MMMF
        
        long term
        
        Bond funds
        
        equity funds
        
        index funds
        
        seek to replicte the performance of a given benchmark
        
        offers benefits of a traditional mutual funds without the fees of the professional money manager
        
        growth in the share of index fund in fund market percentage, but index fund share of US stock market is still small
        
        hybrid funds
        
        specialised funds
        
        Exchange traded funds
        
        investment funds designed to track a particular index (generally stock index or FTSE)
        
        It aims to acieve the same return as the particular market index, they can either be open ended or UITs, but are NOT PERMITTED TO BE CALLED MUTUAL FUNDS
        
        Investors buy shares in the ETF
        
        open ended
        
        fund grows and shrinks with purchase/sale
        
        ETF shares are traded on the stock exchange
        
        shares are bought through brokers investors pay commisions on the trades
        
        No premium or discount
        
        an annual management chage is deducted from the fund
        
        shares reflect the value of the investment in the fund
        
        small spread
        
        No stamp duty on purchases
        
        Key issues
        
        in days of volatile trading, the share price of an ETF can diverge from the proe of assets it's tracking
        
        investors in volatile markets may get significantly less than the assets worth
        
        possible to buy options on ETFs or go short ETFs
        
        problems with synthetic ETFs where investors take risk on the ETF provider
        
        because ETFs are traded like stocks, the prices reflect S&D, not just the underlying value of the assets
      - fee structure
        
        from
        
        institutional investor insurance company pension fund Asset manager
        
        Individual
        
        Government
        
        to
        
        Government Bond
        
        Certificate of Deposit/ Team Deposit
        
        to banks
        
        CP/ ABCP
        
        to corp bank broker/dealers
        
        Floating Rate note
        
        government corp
        
        Repo
        
        Custodian bank
        
        both to broker/dealer or to HF
      - structure and organisation
        
        structure
        
        closed end fund
        
        a fixed number of nonredeemable shares are sold through an initial offering and are then traded in the OTC market, prices are determined by D&S forces
        
        open end fund
        
        investors may buy or redee, shares at any point, where the price is determined by NAV of the fund
        
        organization
      - regulation
        
        MMF regulations as of 2010
        
        MMF are regulated by the SEC, both as MF and pursuant to rule 2a-7 under Investment Company Act of 1940
        
        rule 2a-7 includes several conditions that limit risk in MMF's portfoilo by governing credit quality, liquidity, diversification, and maturity of MMF investments
        
        The SEC approved amendments to rule 2a-7 to tighten fund liquidity requirements, impose stricter quality requirements, address reliance on rating agencies, impose stricter maturity limits, require enhanced disclosure of portfolio holdings and address issues that arise when a money market fund experiences market challenges
        
        Funds that meet the risk limiting provisions are allowed to value securities at an amortised cost instead of market value. This allows the fund to value shares at the fixed price under a wider range of market conditions
        
        MMMF regulations
        
        credit quality
        
        at least 97% of a MMF's assets must be invested in securities that receive the highest short term rating or securitites of comparable quality (first tier securities
        
        liquidity
        
        All taxable funds must maintain 10% of assets in daily liquid assets (cash) US treasuries or mature securities are subject to a demand feature within one business day. All funds must also have 30% assets in weekly liquid assets. Those securities with remaining 60 days or less or those that are mature are subject to a demand feature within 5 business days
        
        diversification
        
        MMF may not invest more than 5% in the securities of a single issuer (0.5% if ratings are in the second highest short term rating cat)
        
        maturity
        
        MMF cannot acquire a portfolio security with a remaining maturity of greater than 397 days. They are also required to maintain a dollar weighted average maturity of 60 or less day without consideration of interest rate reset dates on variable or floating rate securities
        
        2014 amendments (eff '16)
        
        require a floating NAV for institutional prime MMF, which allows the daily share prices of these funds to fluctuate along with changes based on market value of fund assets. Tehy will no longer be allowecd to use special pricing and valuation conventions that used to permit them to maintain a constant price of $1
        
        liquidity fees and redemption gates are provided to non govt MMF to address runs
      - growth of MF
        
        huge growth in US, large percentage of market securities are MF
        
        distinguishing features of MF
        
        "redeemable", investors can sell shares back to the fund
        
        MF generally create and sell new shares to accommodate new investors, on a continuous basis, although in some cases funds stop selling when they become too large
        
        the price = NAV + shareholder fees at teh time of purchase
        
        investors directly purchases MF shares from the fund itself instead of from secondary market
        
        managed by investment advisors that are registered witht eh SEC
      - Mutual fund prospectuses and objectives
        
        Prospectus
        
        SEC require MF managers to specify the investment objectives in a prospectus, a statutory prospectus describes the fund's investment goals and objectives, fees and expenses, investment strategies and risks, and informs investeors how to buy and sell shares
        
        they may also elect to provide investors with a short summary prospectus that contains key info instead of the full prospectus, however, the additional info and full stat prospectus must be available on internet and paper upon request
        
        Performance of MF
        
        The definition is different for a fund manager and investors
        
        for fund manager, risk is defined as the deviation from the index
        
        for investor risk is losing money
        
        Problem arises from diverging interest
        
        no incentive for manager to deviate from the heard, risk of losing job vs chances of winning
        
        performance is measured against an index not in abs terms
        
        Costs
        
        When you buy shares you pay the current NAV plus any fee the fund assesses at the time of purchase
        
        when you sell the shares, the fund will pay you the NAV minus any fee the fund assess at the time of redemption, such as deferreed sales load or redemption fee
        
        investors incur fees and expenses such as upfront or back end fees and fund operating expenses
        
        NAV
        
        The current market value of all the fund's assets, minus liabilities, divided by the total number of outstanding shares
        
        Other fees charged by Mutual funds
        
        contingent deferred sales charge
        
        a back end fee that may appear altogether after a specific period
        
        redemption fee
        
        back end loas
        
        exchange fee
        
        a low fee for transferring moeny between funds in the same family
        
        account maintenance fee
        
        charges of account balance is too low
        
        12b-1 fee
        
        fee to pay marketing, advertising and commissions
        
        TER
        
        the established metric, total expense ratio include charges such as the annual management fee, admin and legal fees and distribution fees. It does not include dealing costs, entry or exot fees and performance fees
        
        tends to fall as fund assets rise
        
        Returns from MF
        
        Capital gains distributions
        
        when fund sells security that has gained in price, the capital gains are distributed to investors
        
        Increased NAV
        
        if the market value of the portfolio increases after deduction of expenses and liabilities, then the value (NAV) of the fund and its shares increases, the higher NAV reflecta a s higher investment value
        
        Dividend payments
        
        earn income in form of dividends and interest, fund then pays shareholders nearly all of the income earned in form of divideneds
        
        With respect to dividend payments and cap gains distributions, funds will usually give you a choice to receive a check or other form of payment, or to have your dividends or distributions reinvested in the fund to buy more shares (often without additional sales load)
    - - current issues
        
        regulators worry about the impact of MMF in the fin sys particularly whether the funds present a systemic risk
        
        European funding capacity was severely impacted when funds pulled out of the market due to the crisis
        
        With investors pulling out, the funds have suffereed from low interest
        
        NIRP is affecting the business model
        
        Role of MMF in the commercial paper market has been reduced
        
        In HK
        
        Growth of ETFs
        
        ETF vs ETPs, the issue of counterparty risk
        
        collateral requirements
        
        Performance and returns
        
        active vs passiv edebate
        
        the great rebalancing?
        
        regulators focus on shadow banking possible sstemic role
        
        the floating vs stable NAV debate
        
        capital reserve managment
        
        growth of digital and robo advice in asset management
      - HK
        
        increase in combined fund management business in HK, largely in public and private funds. Equities take up a majority of assets managed in HK, followed by Bonds and cash and money markets and finally collective investments
        
        Collective investment schemes in HK
        
        regulation: Protection of investors ordinance, Regulator: The SFC
        
        only entities resgisted with SFC are enabled to issue MF and unit trusts
        
        SFC reviews and authorises offering documents of retail investment products, pursuant to the SFO or the Companies' Ordinance
        
        info include prospectus, audited annual report, unaudited semi annual report, and other info, after investments, regular statements have to be provided including valuations as well as number of units
        
        The SFC DOES NOT APPROVE OF RETAIL INVESTMENT PRODUCTS, it reviews and authorises offering documents
        
        assessment of whether a recommendation is suitable must be done by a selling intermediary at the point of sale, considering the investor's personal circumstances
      - ASIA
        
        rise in china's asset management industry
        
        rise of MMF in China
        
        net sales of MMF in Asia are largely related to Chinese money market instrument returns
        
        still a lower share than US investors though
    - - market
        
        increasing trend of number of open eneded funds
        
        increasing IB employment
        
        Vanguard
        
        started the first index mutual find for individual investors and is currently no 2 in asset management behind BlackRock
      - pros and cons of collective investment schemes
        
        benefits
        
        diversification
        
        investors immediately realise benefits of diversisifcations
        
        cost advantages
        
        mutual fund can negotiate lower transaction fees than would be availbale
        
        denomination intermediation
        
        investors can participate in equity and debt offerings that individually require more capital than they posses
        
        managerial expertise
        
        prefer to rely on professional money managers to select investments
        
        liquidity intermediation
        
        investors can quickly convert investments into cash while still allowing fund to invest for Long term
        
        disadvantages
        
        lack of control
        
        investors cannot ascetain the exact makeup of fund's portfolio at any given time, neither can they directly influence which securities the fund manager buys and sells or the timing of those trades
        
        price uncertainty
        
        price at which you purchase or redeem shares in a MF is dependant on the fund's NAV, which the fund might not calculate until many hours after you placed your order,
        
        costs despite negative returns
        
        fees and expenses are due despite fund performance
  - - - how do insurance companies make money
        
        underwriting
        
        process by which insurers select risks to insure and decide how much in premiums to charge for accepting those risks
        
        measured in combined ratio (ratio of losses and expenses to premiums), is under 100%, the underwriting is profitable
        
        investing
        
        invest premiums they collect from insured parties
        
        "float" is the amount of money at hand an insurer has collected in premiums but not yet paid out in claims
      - insurance industry organizations
        
        underwriting
        
        an underwriter reviews each policy prior to its acceptance to determine if the risk is acceptable
        
        claims
        
        The claims adjuster undertakes a thorough investigation pf each claim, and determines if coverage is available under the terms, if so, the reasonable monetary value of claim and authorises payment
        
        distribution
        
        independent agents may sell insurance products of a number of different insurance companies, while exclusive agents only sell products of one
        
        nowadays, most insurance companies use multiple distribution channels including banks, professional org, and market places
    - - Life insurance
        
        basic products
        
        disability
        
        pays insured if they become unable to work due to illness or accident
        
        annuities
        
        pays a benefit to the insured until death to cover retirement
        
        life insurance which is paid off when the insurer dies
        
        whole life
        
        allows holder to borrow against the cash value of policy, insured can get the cash value of the policy back after expiration
        
        universal life
        
        includes both a life portion and savings portion
        
        Term life
        
        while policy is in effect, no savings element
        
        basic classes
        
        credit life
        
        Group life
        
        Ordinary Life
        
        other major activities
        
        sale of annuities
        
        private pension plans
        
        accident and health insurance
      - Health insurance
        
        OBAMACARE
        
        ensuring all American citizens had healthcare
        
        highly vulnerable to adverse selection, hence often offered in group policies, individual policies must be priced assuming adverse selection
      - Property and casualty insurance
        
        property insurance
        
        protects risks associated with owning property, including replacement and loss of earnings from income producing property as well as financial losses to the owners of residential propoerty
        
        named peril policies
        
        insures against losses listed
        
        open peril policies
        
        insures against any losses except for those listed
        
        casuality/liability insurance
        
        protects against fin losses due to a claim of negligence (D&O)
      - Reinsurance
        
        insurance for insurance companies
        
        allocates a portion of the risk to another company in exchange for a portion of the premium
        
        increasing trend of crossing over into capital markets, Cat bonds, Mortality bonds, and growing role of H fund as investors
      - Catastrophic risk and insurance
        
        Insurance linked securities are fixed income securities which the insurance industry passes on pure insurance risk to fin markets
        
        protection in the event of extreme insurance losses, following natural catastrophes or pandemic disease outbreak
        
        Cat bonds
        
        prior to the maturity
        
        if a pre defined peril occurs, part of or all of the capital is immediately transferred to the insurance buyer under the bond, the insurance buyer then uses the capital to pay its claims to ploicyholders
        
        if no major natural catastrophes occurred, the cat bonds are redeemed at 100% on maturity
    - - If a thrid party compensates for the loss, the insurance company's obligation is reduced by th amount of compensation
      - large numbers of homogenous exposure units
        
        law of large numbers: company must have a large number of insured so the risk can be spread among many different policies
        
        law of large numbers states that when many people are insured, the probability distributions of the loses will assume a normal, which allows accurate predictions
      - the insured is not to profit as a result of insurance coverage
        
        principle of indemnity, the policy will only compensate the extent of the value of the property lost
      - calculable loss: loss must be quantifiable
      - There must be a relationship between insured and beneficiary
        
        the beneficiary must be someone who would suffer if it weren't for the insurance
        
        "insurable interest" is the right for the policyholder to effect insurance, if the policy holder suffers direct losses from misfortune to the subject's matter, the Insurable interest exists
        
        without insurable interest, it would be speculative, and not allowed
      - the insurance company must be able to compute the probability of the loss occurring
      - insured must provide full and accurate information to insurance company
        
        Principle of utmost faith
    - - issues
        
        New IIA in HK
        
        replace OCI and take over regulation of insurance intermediaries from the 3 self regulatory org through a statutory licensing regime
        
        PRC impact on life policies sales in HK
        
        ON THE RISE
        
        change in regulatory structure in HK
        
        set up of insurance authority independant of govt
        
        abolish self regulatory system for intermediaries to strengthen conduct
        
        est Policyholder's protection fund as another saftey net
        
        new requirements on underwrtiign unit linked policies
        
        intorduce new intermediaries renumeration disclosure system
        
        enacted new anti money laundering legislation, resolution regime currently underway
        
        issue consultation paper on a risk based capital framework for HK
        
        Chinese insurance appetite
        
        china currently leads Asia's insurer's asset growth
        
        Others
        
        Growth of insurance in Asia
        
        Rise of FInTech
        
        Automaton
        
        digitalsation
        
        increased competiton from China
        
        IFRS 17 and other acct changes
        
        Solvency II and regulatory changes
      - large industry in HK
    - - provides indemnification against loss or liability from specified events and circumstances which may occur or be discovered within a specified period
      - The transfer of risk from insured to one or more insurers
      - insurance companies are financial intermediaries who collect premiums and invest them in securities and other financial assets
      - Adverse selection and moral hazard
        
        adverse selection is prevented by screening and fraud prevention investigations, like physical check for health insurances or preexisting conditions
        
        Moral hazard is when the insured takes on more risk because their losses are covered, companies use co insurance, deductibles and restrictive provisions to help control this problem
- - - - organisational structure
        
        private partnership (limited partners/investors vs general partners/manager)
      - fee structure
        
        2/20 management and performance fee, hurdle rate, high water mark
      - term structure
        
        lock up and redemption features; side pockets
      - strategy diversity
        
        global macro, directional; event driven, relative value
    - - impact of crisis
        
        Performance results and fee structure
        
        HFs as the new mutual funds?
        
        Confidence and withdrawals
        
        Need for regulation of HF?
        
        investors in HFs
        
        New regulations post crisis: Dodd frank act 2010 and private fund investment advisers registration act of 2010, Alternative investmetn fund directive 2010 (EU)
      - impact of Madoff scandal, HFs just a Ponzi scheme?
        
        impact on feeder funds and funder of funds
        
        impact on results and performance
    - - primariy HNWI and family offices
      - overtime, role of institutional nvestors increased
      - due to the search for yield post fin crisis, the flow of money from institutional investors increased
      - recently HF's under performance has caused many withdrawals from key investors, esp US pension funds
    - - Higher water mark
        
        a provision serving to ensure that a fund manager only collects incentive fees on the highest net asset value previously attained at the end of any prior fiscal year
        
        where the NAV drops below its peak, no performance fee can be charged on any subsequent profit until NAV reaches its previous high
      - Hurdle rate
        
        minimum necessary return for a fund manager to start collecting incentive fees, usually tied to a benchmark rate such as Libor or Treasury bill rate plus a spread
        
        means a HF manager cant charge a performance fee until fund's performance exceeds a pre detrmined target
      - beta
        
        gauges the risk of the fund by measuring volatility of its past returns in relation to the returns of a bench mark
      - Incentive (performance) fee
        
        the charge (20%) that a fund manager assesses on gains earned over a 12 month period
      - aipha
        
        measure the value that an investment manager produces by comparing the performance to that of a risk free investment like treasury bills
      - Management fee
        
        the charge that a fund manager assesses to cover operating expenses. investors are typically charged separately for costs incurred for outsourced services (0.5-2%, paid quarterly)
      - Clawback
        
        allow investors to clawback performance fees that were paid in profitable years if investments turn negative
        
        a derivative of this approach is the partial crystallization of hedge fund performance fees. the uncrystalised remaining will be attributed over several periods. a portion of the un-crystalized performance fees will be held in accrual and subject to fund clawback
      - Lock up
        
        Investors cannot redeem capital for a certain period, the committed capital gives greater freedom to the hedge fund manager who does not need to hold as much cash on hand to meet potential redemption requests
      - Catch up provision
        
        once the hurdle rate is reached, the fund manager is entitled to catch up on the fund's return until it received its full share of performance fees on the fund net profits, any additional return will be allocated 80/20 investors to manager
    - - actively managed- returns driven by manager skills 'alpha'
      - no benchmarks, no relative weights, no relative returns
      - flexible investment policies
      - often offshore
      - limited liquidity
      - performance fees (2+20 system)
      - run by partners, not employees
      - secretive
    - - investment companies that invest in HF
      - often have lower min thresholds and can sell their shares to a large number of investors
      - v limited rights of redemption, NOT mutual funds, unlike ETFs, shares are not listed
      - need to pay two layers of fees if you invest through them
      - under pressure currently
    - - no legal definition
      - constitutes an investment program whereby managers or partners seek absolute returns by exploiting investment opportunities while protecting principal from potential financial loss
      - 2 important aspects
        
        the attempt to generate absolute returns
        
        trying to control losses and avoid negative compounding of capital
    - - increase in number of licensed HFs
      - equity long/short strategies and multi strategies remained most popular
      - Increase in total HF AUM in HK, HK and China account for almost half the total HF AUM in Asia
      - Major investment type was instututional investors
  - - - stages of investment
        
        seed
        
        VC
        
        startup/development
        
        VC
        
        Expansion
        
        Mezzazine
        
        Buyouts
        
        PE
    - - initial negotiation
        
        discuss and negotiate several terms and measure of investment with company before submitting to investment company
      - due diligence
        
        Sign Memorandum of understanding
        
        independant investigation of information
      - initial evaluation
        
        evaluate request for financing and business pan, often v high rejection rate
      - final negotiation
        
        key points include price, structure and role of VC investor
        
        legal document to be signed
      - monitoring
      - exit
        
        gen 3-5 years
    - - Equity investments in nonpublic companies
      - equity capital that is made available to companies and investors, but not quoted on a stock market
      - refers mianly to buy-out funds
      - as there is a premium for illiquidity, pricing in private markets is more expensive
      - fee structure
        
        high friction costs (inefficiencies that reduce return on investment)
        
        typically 2% on committed capital and 4% average invested capital; 20% of profits; acquisition fee, disposal fees fees charged to companies and legal fees add another 2%
        
        leverage reduces the impact the friction costs
      - glossary
        
        leveraged buyout
        
        LBO: a strategy financial sponsors use to acquire a majority stake in a company, using a combo of equity and debt, typically these companies are mature and generate healthy cash flows
        
        venture capital
        
        equity investments made to finance the launch, early development or expansion of a business, often found in appication of new tech, marketing comcepts and products
        
        growth capital
        
        equity investment made in a relatively mature company to gain minority position, or to finance an operation without ceding control of the business
        
        distressed tnvestment
        
        investments to a distressed company, investors may acquire debt securities in anticipation of taking over after restructuring, or provide rescue financing, often a mix of debt and equities
    - - growing participation of unsophiticated invstors in PE through pensions
      - competition from corporate VC and family offices
      - disclosure and coporate governance issues
      - shrinking IPO
      - perfromance and fee structure
      - large amounts of dry powder
        
        marketable securities that are highly liquid and considered cash like
        
        impact on valuations and capacity to invest
      - locusts vs public benefactors
    - - money provided by professionals who invest alongside management in young rapidly growing companies that have the potential to develop into significant economic contributors
      - VC is an important source of equity for start ups
      - professionally managed VC firms are generally private partnerships or closely held corps funded by private and public pensions, endowment funds, foundations, corps, wealthy indiv, foreign investors and the Venture Capitalists themselves
        
        Venture capitalists generally
        
        assist in the development of new products and services
        
        add value to company thoguh active participation
        
        purchase equity securities
        
        take higher risks with the expectation of higher rewards
        
        finance new and rapidly growing companies
        
        have a long term orientation
  - - - growth of sector
      - political issues
        
        national security concerns and protectionism
      - size and market impact
      - Disclosure and transparency
        
        IWG was formed in 2008 and published a set of 24 voluntary principles known as Santiago Principles
        
        The IWG also reached a consensus on the establishment of International Forum of Sovereign Wealth Funds to follow up on the context of santiago Principles
        
        The forum is a voluntary group which meets annually to exchange views on common interest and facilitate understanding of the SP and SWF activities, and encourage cooperation on recipient counties
    - - sustained appetite for alternatives and acceleration in SWF growth
    - - key elements
        
        investments
        
        investments in foreign assets
        
        purposes and objectives
        
        achieve financial objectives
        
        ownership
        
        owned by the general govt, both by central and subnational
      - Sovereign wealth funds are special purpose investment funds owned by the general government for macro purposes. SWFs hold, manage or administer assets to achieve financial objectives and employ a set of investment strategies such as investing in foreign assets
      - commonly established out of balance of payment surpluses, official foreign currency operations, the proceeds of privatisation and fiscal surpluses