As one of the few virtual asset managers approved by Hong Kong’s Securities and Futures Commission (SFC), Axion Global Asset Management helps professional investors navigate the crypto market and achieve their investment objectives without compromising on traditional regulatory and risk management standards. Chris Tam, the company’s COO, highlights the opportunities and challenges facing emerging managers in the digital assets sector, and how technology can serve as a differentiator.
What are the greatest risks facing both your business and your clients at present?
The regulatory landscape in Hong Kong is fast-evolving and requires regulated virtual asset service providers like AGAM to stay agile and adaptive. At the same time, the digital nature of virtual assets, makes them vulnerable to hacking, phishing, and other types of cyber-attacks. In this regard, AGAM is committed to safeguard the trading infrastructure from cyberattack.
We also face the common challenge facing other asset managers during this period of stagnant economic growth, of Investors becoming more risk-averse and seeking safer investment options. To this end, we provide an effective hedging strategy to ensure sufficient drawdown protection while gaining the potential crypto upside in the long run.
Where do you see the most significant opportunities for growth in the coming year?
With the Hong Kong government’s effort to create a healthy crypto environment with a comprehensive regulation and licensing regime, retail investors will become more confident to participate in the market, and that presents significant growth opportunities. We see the possible plan to issue a bitcoin spot ETF in the US is a catalyst to the crypto market at large.
We have also observed new and solid use building on the BTC and Ethereum layer such as lightning on BTC and new Ethereum applications, which can increase the use of blockchain technology and the value of mainstream cryptocurrencies. Simultaneously, as the crypto market matures, there are more opportunities to apply quantitative strategies that have been successful in traditional finance. This includes machine learning algorithms and high-frequency trading strategies.
How do you see investor appetite for hedge funds shifting in the future?
Under the inflationary global economy, with cryptocurrencies gradually becoming mainstream, more investors are likely to consider them as part of a diversified portfolio and to allocate to hedge funds demonstrating suitable risk management capabilities.
Investor appetite will remain as volatility continues and funds will shift towards more specialised managers with deep expertise in a certain domain. AGAM itself, is specialised in secondary crypto market investments.
What opportunities do you see emerging for hedge fund firms in the near future?
We expect a variety of crypto investment products to evolve according to investor demand under the regulatory environment, providing more opportunities for hedge funds specialising in digital assets, in terms of a broader strategy offering and increased investor interest.
Increased interoperability between blockchain and Web3 projects will also allow for diversified investments across multiple networks with their corresponding cryptocurrencies, potentially improving portfolio performance and risk management.
What role can technology play in portfolio risk management?
Technology can enable sophisticated risk modelling, stress testing, and scenario analysis. Quantitative models can simulate various market conditions and their potential impact on the portfolio. Specifically, a systematic portfolio risk management system can monitor a portfolio in real-time, automatically adjusting positions and hedges based on pre-set risk parameters, helping maintain a balanced risk profile, even in highly volatile market conditions.
All in all, AGAM expects technology will become a competitive differentiator for hedge funds, including cybersecurity, quantitative modelling and analysis with AI, and the investor experience such as onboarding and customer service.