Defying Gravity: The Future of Alternative Investments in Exceptional Times. This was the theme at the fourth Cayman Alternative Investment Summit, hosted by Dart Enterprises at the stunning, recently opened Kimpton Seafire Resort & Spa on Grand Cayman.
Featuring a stellar cast of panellists from leading institutional investment groups, alternative fund management groups, economists, philanthropists and academics, the two-day event explored the many forces working against the alternatives industry – the challenges and opportunities that managers face and how they must defy gravity, to take the industry into a higher orbit.
"With rapid technological changes and major geopolitical shifts around every corner, this next year will be unlike anything the alternative investment industry has ever faced," said Chris Duggan, Director of CAIS and VP of community development for event sponsor, Dart Enterprises. CAIS 2017 was, he said, all about discussing "how to confront these challenges and how to chart a path forward for the industry, both by taking a leading role in shaping our world and by becoming a force for positive change."
"Robotics, augmented reality, artificial intelligence; we are becoming more and more immersed in digital technology as a civilisation," said Anthony Cowell (pictured), Partner at KPMG and Editorial Chair at CAIS 2017, in his introductory presentation. "Investment managers should embrace technology so as to not get left behind. Be agile. And put the customer/investor at the heart of everything you do."
In a survey of attendees at CAIS 2017, nearly a third believed that AI is the emerging technology that will have the most impact on the world in 2017, a figure that is supported within the industry by the rising interest in quantitative investing strategies that utilise data science and machine learning.
"A lot of people are saying that the foundations of our industry are crumbling," he continued. "But there's never been a better time for the alternatives industry, which oversees USD8 trillion in AUM. Private equity, private credit and real estate all performed really well in 2016 and we think these assets will continue to do well in 2017."
That includes hedge funds, which have had a difficult time in recent years, some of which have either folded and disappeared down black holes because of poor performance or, in the case of high-profile veterans like Richard Perry (Perry Capital), have called it a day after 28 years because the markets no longer support their strategy.
"USD100 billion of redemptions on USD3 trillion of assets isn't really that big a deal. Hedge funds have found it difficult to trade with low volatility and high government and regulatory intervention. But we expect this to bounce in 2017, and my prediction is that credit, real estate and infrastructure will continue to be the leaders in our sector," remarked Cowell.
As the alternative investment industry continues to mature, one is likely to see customisation at the core of managers' product offering. This is crucial in the pursuit of future investor dollars as investor demographics steadily move increasingly towards millennials. This is a generation that has been brought up with the internet, has less patience, expects results at the click of a button and spends more time communicating online that in person.
This is a generational shift that will require fund managers to recalibrate their engines if they are to reach out and connect with.
"Millennials are set to inherit USD40 trillion in the next two decades, and that represents a huge opportunity for investment managers that can find a way to connect with them. Trust is changing in today's knowledge-based economy. I truly believe it is democratising investment management and changing the trust contract between investor and manager," said Cowell, citing Airbnb as an example of how we, as a society, have overcome preconceived ideas of trust.
Cowell suggested that regulation and technology, as well as investor trust, are key gravitational forces acting upon the alternatives industry.
"We are starting to see the rise of factor investing emerging once again. Artificial intelligence, combined with that approach to investing, creates commoditised alpha, which I believe is something that is not being talking about enough in our industry," commented Cowell.
From an efficiency standpoint, Blockchain will revolutionise trust in the future, and from a money management standpoint, a recent KPMG survey found that 58% of investors canvassed, believe that AI and machine learning will have a disruptive effect on investment management.
"In discussions with my clients, most are still developing and refining their digital strategies and no firms have yet got significant competitive advantage. But lets be clear, the next generation of managers will need to be dreamers and explorers – they will be creating profound change, much like the music industry did over the last 10 years," concluded Cowell.
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