Head of Fundrock Singapore Management Company Pte. Ltd
Nicholas Hulme joined FundRock in May 2021, as Head of Fundrock Singapore Management Company Pte. Ltd, he brings with him over 24 years of experience working in financial markets. Nicholas has spent over 14 years covering the Asian markets with extensive experience in private equity, alternatives and traditional investment strategies.
FundRock , an Apex Group Ltd company, is a leading independent UCITS Management Company and Alternative Investment Fund Manager in Europe now offering a breadth of services globally.
Our clients are established blue-chip companies and leaders in their domestic market. This is important to us as well as being increasingly important to asset managers and investors, as it means there is a low contagion risk to their brand and investments.
Mike Sim (MS): What are the current challenges facing the financial industry, particularly in light of global economic uncertainty?
Nicholas Hulme (NH): There are a number of different issues really in the liquid space. I would say one key issue is active vs passive, specially given the recent concentration of performance around say US tech, or AI. Outside of sector specific funds.
- This seems to be a cyclical debate returning every few years and currently from a macro perspective there are significant challenges to outperforming passive investment strategies. I read an interesting piece the other day stating that whilst 1/3 of active managers managed to outperform their passive competitors it obviously comes at much higher average fees so not always beneficial. The majority of the managers that outperformed, we in emerging markets (EM) vs developed market strategies: Fifty percent outperformance in EM vs 10% in developed.
- From an investor perspective, you want to have the best managers obviously, but it also requires skills and experience to do fund selection and there are still significant challenges to selecting the best managers. From a flows perspective we have seen the vast majority of the inflows has been in to passive fixed income and passive equity strategies over the last 12 months.
- Take it one step further at an institutional scale this issue increases with portfolio size, the larger the investor the greater number of funds they would invest in. This naturally builds greater diversification within their portfolio’s and consequently their underlying holdings start to revert to benchmark any way at a higher fees.
This makes it challenging for active managers to justify their fees. Leading to fee compression and greater competition all around. And in an environment where costs are increasing globally it doesn’t bode well for smaller scale managers.
If you add the political tension to the global rising interest rates it has led to a more risk off allocation and also perhaps headwinds for expected returns in recent PE vintages. It has also forced funds to adjust their allocation plans and geographies, to appear more Pan Asia vs country specific. Clearly there is also investor concern around market volatility in China in general and especially on the back of the issues of some of the real estate developers there weighing on the overall growth of the economy.
FundRock at a glance
Mike Sim (MS): How do you foresee the outlook for the financial markets in the next 5 years, considering geopolitical tensions and technological advancements?
Nicholas Hulme (HM): We always have to be bullish, right, or otherwise we are in the wrong industry. So the outlook is always going to be positive, positive that we will find the right solutions or innovations to overcome the issues or headwinds.
Geopolitics is nothing new, for sure we are coming off the back of what is in our times the longest period of extended peace and economic growth since World War two. Now we have war in the Middle East again, we have an extensive ground war in Europe for the first time in 80 years. With serious potential for escalation, whilst uncertainty and instability is never good for financial markets it doesn’t necessarily mean there won’t be opportunities.
Given where rates are currently and where emerging market economies are it might be an interesting time to look at EM debt local currency and private debt strategies.
Technology is always a driver of innovation so short of saying AI is “Skynet” (think Terminator 2) there are going to be significant opportunities to use technology in the financial industry. This is not new, look at Rentec and their Medallion fund. AI and machine learning are just the next steps. We have had Robo advisors and quantitative funds for a while now. It is perhaps more interesting to look at technology as an enabler of efficiencies on both sides. So for example at Fundrock and Apex we are investing heavily in technology to enable us to increase efficiencies on the asset servicing side, aiming to go end to end on chain including distribution.
Mike Sim (MS): Can you discuss the role of Environmental, Social, and Governance (ESG) factors in investment decision-making, and how it impacts portfolio performance?
Nicholas Hulme (HM): Well we don’t have an ESG specific strategy for the time being however I believe that it has to be a fundamental part of investment decisions. When assessing an investment, you always take into consideration social, and governance concerns. You want to ensure, to the best of your abilities, that the company you are looking at investing in is not going to get hit with fraud, or lawsuits because of illegal improper conduct or unsustainable employment tactics etc. You always want to lower the risk of your investments as much and wherever possible.
Now with climate change and concerns it is a natural addition to the investment process. This doesn’t mean we also can’t run a strategy in natural resources or taking advantage of fossil fuels, but you have to be clear and upfront about your strategy and the funds objectives. Green washing remains a significant problem as ESG is now pretty much a must have for a lot of institutional investors.
Internally within the group we actually have a full ESG consultancy and reporting and analytics company called Holtara, they focus on ESG reporting, benchmarking and advising on best practice for private companies.
Mike Sim (MS): What initiatives does your company undertake to address ESG concerns and promote sustainability in investment strategies?
Nicholas Hulme (HM): So at Apex group we not only have an ESG team doing review and consultancy on ESG process and reporting for our clients but we also turned the lense on ourselves. The group did a full review on our carbon footprint for example on all of Scope 1, Scope 2, and material Scope 3 emissions – in particular business travel – across our global locations.
We have taken steps towards offsetting these lifetime emissions back to 2003 with high quality, certified offsetting projects. As a result, we are carbon neutral across many of our operations and functions.
In 2022 the group made donations in excess of 650,000 Pounds to WaterAid and Eden Reforestation Projects; in partnership with Eden Reforestation Projects, we have now planted 333,333 trees in the mangroves of Madagascar in recognition of employee length of service and new client contracts signed.
Mike Sim (MS): How does your platform streamline the regulatory onboarding process for global asset managers looking to enter the Singapore market, ensuring compliance while minimizing administrative burdens?
Nicholas Hulme (HM): First let me say this: the most important part of the process is to ensure a good fit with the underlying managers that we will be working with, it is important for us to ensure we believe in the process, and investment opportunity” and I will tell you why.
Nicholas speaking at a Roundtable event
Well, we are set up as a fund manager, so the regulatory burden is on Fundrock Singapore, so the only hurdles the Managers have to satisfy are ours essentially.
We have the responsibility to ensure that our managers and by extension our funds are held to the highest scrutiny possible. We see the whole engagement as more of a partnership for the long term, we want to be able to co-manage the strategies alongside our managers, we want to be able to help them raise capital and we want our clients/investors to have strong returns. Otherwise, it is a significant reputational risk for the firm and the group.
We take on the regulatory reporting, compliance reporting for each of our funds enabling our managers more efficient and streamlined process so they can focus on what is really important to them which is generating returns.
Mike Sim (MS): Can you elaborate on the specific services and support your platform offers to medium to large asset managers seeking to establish new investment strategies in the Singapore market?
Nicholas Hulme (HM): Given the breadth of the Apex Group and Fundrock we have extensive expertise across all asset classes and access to cutting edge technology to make sure our managers have all the information they need when they need it to make investment decision.
We are building a full single source solution to enable managers to come and join Fundrock to set up a local vehicle, and access the market in the most efficient seamless manner possible. We will most likely have a couple of our own VCC’s one liquid and the other illiquid to enable quick access to subfunds cutting down their time to market significantly.
Most managers already have a successful traditional route to market, so we are also looking at eventually creating a fully digital solution here in Singapore enabling the entire process to be managed on chain including onboarding, administration, custody and distribution. This may provide the managers with access to whole new section of investors that they have not previously been able to access. For some of the more illiquid and alternative strategies with larger minimum ticket sizes, such as private assets this is could prove to be a very interesting avenue. Adding on to the above we also have significant distribution experience and can help guide our managers in raising assets around the region and in Europe.
Mike Sim (MS): What role do you believe blockchain and cryptocurrency will play in reshaping the financial landscape?
Nicholas Hulme (HM): At Fundrock and Apex we are investing heavily in technology to enable us to increase efficiencies on the asset servicing side, aiming to go end to end on chain including distribution. We have already developed a process in Europe that is ratified by the CSSF to enable one of our clients to have a traditional private equity strategy that is end to end on chain. So by that we have the client/ investor onboarding process that is digital, transfer agency on chain, the valuation and admin process on chain and the asset is custodized with a digital asset custodian and distributed through tokens.
We also are able to offer subscriptions and redemptions in-kind in USDT or USDC, probably eventually other crypto currencies as well. There are going to be a lot of generational shifts in the next few years as crypto becomes more and more mainstream. Not that it isn’t already with BTC back above $65K but people potentially looking to diversify the BTC wealth into traditional assets like private equity, real estate funds etc, and will want a way to transact in BTC.
We are working on ways to make that happen, but the main issues around that is evidently Know your Coin or know your tokens and the concerns around AML and CTF. But I am sure there will be solutions to overcome that eventually. For now, we rely primarily on the regulated Exchanges or Cold wallets.
Nicholas as a panellists at SuperReturnAsia
Mike Sim (MS): How does your platform differentiate itself in providing tailored solutions for global asset managers seeking to access the Singapore market compared to other market entry facilitators or consultancy firms?
Nicholas Hulme (HM): This is a great question; well, I have been in the asset management space for over 24 years now and I know a lot of the issues and hurdles faced by asset managers in Singapore and around the world. So our aim and the reason why we are here is to create something for asset managers by an asset manager to make their lives as simple and straightforward as possible whilst removing as much of the regulatory and compliance risks as possible.
We want to be able to do this at a price point that is affordable to managers coming into the country so it makes it more appealing from a P&L perspective and means that they can achieve their goals faster.
There is not one thing in specific that we do differently it is just that we take each manager and address their situation individually, so all solutions will essentially be tailor made for that fund manager.
Mike Sim (MS): Could you provide examples of successful case studies or testimonials from asset managers who have utilized your platform to enter the Singapore market or launch new investment strategies?
Nicholas Hulme (HM): Come back to me next year on that one and hopefully I will have a couple of testimonials of happy clients for you.
Mike Sim with Nicholas Hulme
Thank you, Nicholas, for taking the time to share your valuable insights on how Apex FundRock aims to assist global asset managers in entering the Singapore market. Your expertise and perspective shed light on the challenges and opportunities in today’s financial landscape.
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