The Derivative - Asian Markets, American Investments, & Accessing (Chinese) Futures with Alvin Fan of OPIM

Episode Date: April 8, 2021

We’ve said it before and we’ll say it again – the opportunities in the Asian investment landscape are nuanced, emerging, and incredibly attractive. But on top of the excitement around the opportunities, there’s also gated access and a general list of unknowns that can make investors think twice; so, in this episode we’re joined by Alvin Fan, CEO of OPIM to check off the list of questions and give you more clarity on investing in the Asian markets.  Today, Alvin is giving you the inside scoop on OPIM, alternative investment demand, health hacks, manager standpoints from Asia, cap intro events, E/W <-> W/E investment opportunities, OPIM structure for investment opportunities, QFII updates, more hedge funds than Taco Bells, Chinese A-shares, futures markets in Asia, Clone Wars, growth of investor class, and the Asian investment landscape.  Sign up for OPIM’s Cap Intro event here. From the episode: Dell Stock Chart Chinese futures volumes getting big…like, a billion contracts big  And last but not least, don't forget to subscribe to The Derivative, and follow us on Twitter, LinkedIn, and Facebook, and sign-up for our blog digest.  Disclaimer: This podcast is provided for informational purposes only and should not be relied upon as legal, business, or tax advice. All opinions expressed by podcast participants are solely their own opinions and do not necessarily reflect the opinions of RCM Alternatives, their affiliates, or companies featured. Due to industry regulations, participants on this podcast are instructed not to make specific trade recommendations, nor reference past or potential profits. And listeners are reminded that managed futures, commodity trading, and other alternative investments are complex and carry a risk of substantial losses. As such, they are not suitable for all investors. For more information, visit www.rcmalternatives.com/disclaimer

Thanks for listening to The Derivative. This podcast is provided for informational purposes only and should not be relied upon as legal, business, investment, or tax advice. All opinions expressed by podcast participants are solely their own opinions and do not necessarily reflect the opinions of RCM Alternatives, their affiliates, or companies featured. Due to industry regulations, participants on this podcast are instructed not to make specific trade recommendations nor reference past or potential profits, and listeners are reminded that managed futures, commodity trading, and other alternative investments are complex and carry a risk

of substantial losses. As such, they are not suitable for all investors. Welcome to The Derivative by RCM Alternatives, where we dive into what makes alternative investments go, analyze the strategies of unique hedge fund managers, and chat with interesting guests from across the investment world. In particular, with the commodities market, there is still quite a bit of dispersion between the spot and the futures market. And so regulators do see a huge benefit for having more international participation to equalize it with international dynamics. Yeah, exactly. So I think I think this is this is a win win situation for for both the offshore investors and onshore investors. what QFE is now the QFE regulators have now done is they've opened up the regulation to allow more

investors to come and access onshore. And it's still not, you know, retail guys still can't go in and get his own QFE license to do it. But a lot more, a lot more entities are allowed on. So anyone with an established firm, you know, a decent size AUM or properly regulated in the respective jurisdictions and agree to abide by the regulations onshore, it's more possible now, it's easier to get that license. But the key here is actually not just who can access the license, but more importantly, the products that can be accessed. Hello, everyone. We're heading over to Hong Kong for tonight's pod to dig into just what the alternative investment landscape looks like in the broader Asian market and China in particular. Who's allocating? Who's looking to get access? Who has access? There's tight regulations and limited opportunities, but also huge opportunities for investors to access this young and quickly

growing market. So with all the regulations and gatekeeping, we wanted to get some inside info, so to speak, straight from the source. So today we're joined by Alvin Phan, CEO of OP Investment Management. He's joining us to dig further into the Asian investment landscape, the appetite for alts over there, what East-West-West-East means, and much more. So welcome, Alvin. Cheers. Good to be here, Jeff. Thanks. And it looks like you're back in the office. Yeah, yeah, we got the whole team in. We've been back for more than a few weeks. We've been in and out for the better part of the last six months. I mean, we're kind of lucky here, right? We've kind of dodged most of the daily cases, and I think we're at zero right now. So the government's thinking of relaxing the austerity measures a little bit more.

Awesome. And I remember last time we saw each other in person was in Miami, Jan of 2020, right? And I remember, like, I wanted to come in, I think you mentioned the virus. And I was like, oh, that's not a big deal. Just let's talk about the riots. That's the bigger deal. So so you were right. I was wrong. The riots weren't as big of a deal. But what's what's going on with the whole social unrest landscape over there in Hong Kong these days? The pandemic has kind of ironically just made everyone a little bit more concerned about their health than about social order, though. You know, you've probably seen in the news there have been a very, very strong, there's been a very, very strong move by the government to make changes in the system, in the regulatory system. You've probably seen NSL a lot in the news. It's very much a reactionary to try to, you know, try to restore some sort of social order after what happened in the last couple of years from 2019. And so for business, it's been, it's supposed to to be and it has been actually quite

positive. A lot of things have actually turned very much in favor of Hong Kong, you've seen a lot of IPOs return for better for worse because of what's happening with with the US and China trade tensions. But that's driving a lot of liquidity to the market. Government has also laid a roadmap for Greater Bay Area, which is to expand the economic zone from Hong Kong, Macau to, you know, several other provinces, which essentially grows the market from, I think, where I wrote 8 million right now in Hong Kong, it'll grow the market to about 100 million in the space of the next decade. 8 million people, you're saying to yeah in terms of servicing a serviceable financial sector yeah and what back during those riots there was talk of

financial firms leaving hong kong like going to shenzhen or shanghai or wherever like what did that happen or was that fear-mongering It's mostly it did happen, but probably not to the massive extent that was being published in the news. I think you did see just out of I think just out of diversification. You saw a lot of account or deposits diversify Singapore, but not necessarily move out of Hong Kong. Financial firms. There are a few that opened up expansionary offices in Singapore, but not completely. You didn't see a mass exodus of financial firms or FCMs or even asset managers reestablish themselves there.

We're still by far the, still the largest hedge fund hub, certainly largest asset management hub in Asia to date. And you see that changing anytime soon? Like the fear is that Chinese government will come in and shut it all down, right? Yeah. Yeah. I don't, I don Yeah, I don't see that happening anytime soon. One of the, you know, when we talk about what makes Hong Kong really special, a big part of it is about the regulatory framework that's been here.

SFC is still the gold standard, still perceived and regarded as a gold standard. You know, onshore regulation is catching up really, really fast. And they're learning and adapting, you know, very, very much geared towards building an onshore strong regulatory environment. And they do look to SFC for a lot of guidance on bridging that gap. And that's still very, very much Hong Kong's edge. So, yeah, we don't see that happening anytime soon. If anything, we do see Hong Kong's influence on China increasing over time. Got it. I'm just sorry. I'm burying the lead a little here.

But yeah, it was on with a hedge fund U.S. manager the other day who's structuring trades, like basically puts on the Hong Kong dollar, you know, thinking that it's going to eventually crash because of the Chinese intervention. But anyway, we'll get to that in a minute. Hold on a second. I saw you had a – can I see your mug again? Yeah, sure. It's a Star Wars Come to the Dark Side.

Nice. That's right. Nice. We could have coordinated. I could have got one of my nerd mugs going. And so let's back up. I heard you say out like you're from Canada. So you're from Canada? Yeah. Yeah. Born and raised in Canada. Born in Toronto. Pretty much after I graduated in 99, I came back to Hong Kong shortly after I started my career in tech and worked for Big Blue for a couple of years.

And, you know, all all the rage at the time in Hong Kong was finance and especially with the tech bubble coming to a close. And so I finished up B-School at Western. Shout out to the Mustangs and moved into a private equity for about four years and four or five years. Western Michigan. You're talking Western Michigan? I'm Canadian. So it's Western Ontario.

Western Ontario. All right. Western Michigan is the Cowboys or something. I'm going to look that up. Hold on. But OK. Western Ontario. What did you say?

Broncos? The Mustangs. Mustangs. All right. Yeah, so did B-School, undergrad at B-School there, and moved into private equity for about four or five years. 2009, GFC hit, and then we returned capital to our investors at the fund I was working at, which was Accelera. And then I joined OP Group and then moved into Fund of Funds.

And now we're doing what we do now, which is a hedge fund platform. And the private equity was U.S.-based or Asia-based? Oh, it was Eastern Europe. Yeah, no, the shot was based here in Hong Kong. We're looking at distressed assets in property related logistics, logistics related property, communication centers. We're in Romania, in Berlin, spent three months of the year and in Bucharest. We spent some time in Thailand.

We're the first to move into Macau before the big Venetian outlay started back in 2004. So it was pretty exciting at the time. So that firm returned all the money, though? It couldn't make it through the down period? Yeah. I mean, we're lucky. We didn't lose any money for investors, but because everyone was diving for liquidity at the time. So we were lucky to be able to return money to the investors before we could make any liquid positions long term. So yeah, but even if you make the right decision doesn't mean that it's good for business. So we had to shut down. I always sometimes wish I was in private equity instead where you don't have to mark to market every day. You get to call more capital from investors.

That seems like an easier gig. But I guess you're proof. We knew on the other side. Right. I guess you're proof that there's downside to that as well. Before we go now, my next attention disorder question is going to be what's that thing behind you there over your left shoulder yeah oh yeah that's the uh that's the monkey king uh i can't hear i'm pointing yeah that's it that's a statue of the monkey king uh it was a gift to me from one of my uh one of the founders of of the group and colleague who left us.

But, yeah, Monkey King is a historical Chinese figure. The idea is to hopefully reflect some direction for the firm and myself. Nice. So I keep it there. Working so far. Yeah. And where is your big tennis fan? Yeah, yeah.

More of an avid player, big fan of of a avid player big fan of you know the big three you know fred nidal and uh jokovic hoping they'll hang around a little bit longer uh to show the young blood the young guns how it's done um do you put jokovic in that big three yeah i think he's he's definitely up there now right and i i do think he's got a few more majors ahead of him he will very likely i think the odd uh bookmakers are placing a very high chance of meeting um matching uh fed and and nadal and potentially beating them really i have it's probably just a little ageism showing of like no how could you ever get ahead of federer right but blasphemous right yeah right i guess technically it's possible and then nadal though i'd rather watch nadal any day than either of those guys yeah he's super fun

to watch he's got the energy uh and then also i'm reading in your bio your health hacks what what's a health hack yeah so I'm a big um I'm a health hacks are like you know I think everyone is into it now these natural supplements um I was I was indoctrinated into CTM Chinese traditional medicine when I was a kid so having really you know, fluids being forced down my throat was something that, you know, became pretty routine for me. It helped clear my acne at the age of 21. So that made me a believer. And then I moved from CTM to, you know, because of my Western background, I kind of like to see a lot of this being verified in science. So, you know, studying a lot of the U.S. and the Canadian research papers on how natural supplements are now, you know, actually very effective and great alternatives for Western

medicine. So, yeah, I think a lot of us now, probably including yourself, Jeff, we've got a big stack of supplements sitting in the front drawer when we wake up in the morning. You know, half of it works. Not sure if the other half does, but I'd like to think it keeps us younger for longer. Right at the beginning of COVID, I bought from Costco a thing bigger than this room of the the uh vitamin c packets like the fuzzy things you pour into a cup yeah i'm almost done with those i take like one or two of those a day yeah but it didn't save me i still got the covid but um yeah i'm not into those supplements the my wife's cousin sells the oils you're not into the oils

aren't no i haven't figured it out yet yeah don't do it i think there's a reason they called it snake oil back in the in the 1800s right now it's just snake essential oils have replaced snake oils yeah um cool so then you're back in hong kong i to ask you quickly. So what were you doing? You said big blues, that's IBM. Yep. And so you were a coder or a salesman or a tech guy. What were you doing? Yeah. Yeah. I was in, in marketing and sales. I was looking at more on the product development side. At the time Dell, I don't know if anyone still remembers Dell.

It was a big computer company. Invented the direct model. And I had done a contract with Dell for about half a year, almost a year when I just graduated, just to pay off some credit card bills. And when I came to Hong Kong, I got picked up by a team, IBM.com at the time, and they're looking at completely restructuring their business model to the direct model. So I had a little bit of experience at Dell and I was able to add some value. So I got lucky, got onto a couple of implementation projects, restructuring projects, budgeting. And this was just before the firm sold the Lenovo brand, which was a laptop for those of you. So Sony, who did they sell it? They sold the ThinkPad brand to Lenovo,

which is now a big computer manufacturer. So you stumbled upon one of my favorite dad jokes. What do you know a big computer manufacturer yeah so you stumbled upon one of my favorite dad jokes what do you call a singing computer what do you call the same computer should i know this no adele that's terrible it's terrible but fine it's sort of hip it's not a total dad joke because adele's sort of modern in the last 15 years right yeah yeah and there's just enough people in the audience you know dell yeah exactly uh another thing we'll put it in the show notes if you've ever seen dell's stock chart it's like almost exactly i think it was outperforming bitcoin like that was just an insane

right because he started it in his garage or whatever in austin texas and then it's another great success story because he bought it right kind of after that model died and apple was taken over he bought it back michael dell took it private and then built it back up and then re ipo'd it so i think it's back public now. So yeah, super American success story there. Yeah. I love it. So you leave there, you go work in private equity, and then you end up back in Hong Kong and join OP. So who's, what's OP stand for? And

back in my surfing days, that stood for Ocean Pacific. Yeah, OP stands for Oriental Patron. Oriental Patron is probably still one of the oldest partnerships in Hong Kong. It's a boutique investment bank that started in 1992. You had two policy writers from the CSRC, the Chinese regulator, got together with two Hong Kong brothers. One was an investment banker from Credit Agricole. The other was an accountant by training. And the four of them really simple helping small companies access capital markets raise capital in Hong Kong on the Loaning Exchange we became started off as as an advisor IPO house we're one of the first to sponsor to be a sponsor for the GEM board which is the same as the London Aims board board. So these are all growth enterprise companies.

And then, you know, fast forward to the mid-2000s, you kind of, you got to grow, right? These companies are going to grow with you. So you kind of grow with them. You know, these are the first tractors, the menu, dairies. As they grow, you grow and you start to expand your services into brokerage, institutional desks, research, and then finally asset management. And asset management is kind of where we came out of. And just want to back up there for a second.

So all these companies are IPOing and they are in Shanghai and Hong Kong. They have a dual listing or how does that all work? Yeah. Yeah. They might establish an offshore entity. And then they'll do a they might not necessarily list onshore, they might list in in Hong Kong first, or at the time, you know, you know, so long as the business was was strong, there was some way to help them raise capital. And at the time, there was a growing push for internationalization. And, you know, we're kind of past that point now. But at the time, you know, a lot of their aspirations are

coming offshores, not just to raise capital, but also to increase their brand presence globally. And Hong Kong was the first port of call. Yeah. And so what were some of those early companies that built the back? What did you say? A tractor? Yeah, like, you know, these are like first tractor. I think we're also involved with Mingnu Dairy, which is one of the largest dairy companies.

Hainan Airways, which, you know, actually is having a really tough time right now, but they're still one of the largest airlines in the country at the time. But, yeah, you know, all of these companies at the time were very, very small, had great global aspirations and were the first to help them come out. Even up until the mid 2000s, even though it wasn't a capital markets deal, we helped one of the largest fixed income managers come offshore, trying to sell there. I believe at the time they were second or third in the country. When they came offshore, they started, and we can talk about this later, they started with the first QFEE license. And when they came into Hong Kong, and a a QFE license allows you to trade onshore underlying assets onshore. And when they came offshore, they were given one of the first

licenses. We created a joint venture company called CSOP, CS for China Southern, OP for rental patron. Assets were just like a hundred million at the time, roughly speaking. They're now, today they're over 10 billion US, I think. They run one of the biggest ETFs, ETF portfolios in Hong Kong. Wow. And it's fixed income still? Not just fixed income. The big ones are now it's ETFs. So these are equity. Got it, got it. And so you came over and they started,

as you said, the kind of final piece there was investment management, asset management. So was OPI, IAM pieces, investment management that had already been started or you came in and started it? Yeah. So that was kind of started at the time we were looking at the management was looking at building in-house products. But asset management, as you know, you guys are very well. It's it's a very tough business. Building products in general, building alpha products is even tougher. What we started off realizing and this was a combination of what we did with CSOP was that we said, hey, look, building in-house products is pretty tough, but you have all this talent in the region.

So the idea came was, well, what if we were to mine that talent? And we're talking about homegrown, fundamental macro managers. And we got together with a couple of fund of funds, and we built this incubation fund of fund started with really small number of about 100 million or so and we started seeding them in you know small emerging managers and it turned out really successful so we took the learning points of that and we thought what if we built a platform that could enable early stage managers some with pedigree some without pedigree,

and help them build that two to three year track record. Now, one thing that's true globally about starting a fund or a hedge fund or a product is you need that two to three year track record. And it's really, really expensive to set up a firm for that. So we built a platform to help them work out those two to three years, and then we would help market them to institutions afterwards.

And so there was, never was any in-house product? No, no. Well, we did have one at the time was the fund of funds. We did the in-house product then there was a legacy uh fund at the time um but that fund um we retained it but it they became kind of like a client manager meaning like they're partnered with us but they they run independently uh we run risk um at the back office uh but the pm is still with us um but by and large no we don't we don't run any internal homegrown products. Right. You're saying and said, hey, we know how the pipes work. We know all the regulations.

Let us help you get set up. Let us help you get set up possibly cheaper. You focus on just delivering the alpha. Exactly. That's exactly it. So it's an education process, right? It's like starting a business. A lot of these

guys who spin out from sell side shops even buy side shops they've never actually run a business before which is ironic because they spend most of their lifetime analyzing other businesses and yeah criticizing other businesses but if you actually put them in the in the driver's seat you'd be amazed at how many of them, you know, are actually successful in that venture. Right. And some, it's that down to the trade level, like sometimes they don't like, well, I've never had to reconcile my own trades or things like that. Like that was done by the, you know, the big firm or the team over there. Now I don't have a team,

but things like that are also things like marketing and cap intro. Oh yeah. It runs the entire gamut. It started off really just, you know, doing, you know, middle middle sort of just back office settlements, reconciliation work, accounting. But we being the license holder, you have a fiduciary for more than just that. You have a fiduciary responsibility for looking after risk, which is in part very much a discretionary role. So we started building a really strong expertise in understanding how managers think, especially from a psychological perspective,

from a risk management perspective. A lot of these guys are one man shops,, two-man shops. They can get into trouble sometimes. And so having a team to help them flesh through what a book should be run, how a book ought to be run, diversification or sizing, execution, best execution, pricing, for example. It's a lot of value to add. We then moved into Cap Intro simply by virtue of the fact that we had flow of new emerging managers. And we became, I don't think lightning rod is the word, but we became kind of like a draw point for a lot of allocators,

accelerators who are looking for emerging managers outside of the bottleneck big managers out there that are massive. You mentioned Capintro. So you guys run some, they used to be in-person events, but you've been doing virtual events too. How does that look? There's kind of the context of Hong Kong. Yeah.

Yeah. So all of the events that we run are through the lens of Asia. That's kind of our bread and butter. It's where our specialty is. The platform has around 38 funds on the platform right now. We run about $1.8 billion in assets. But we also represent a lot of managers who are third party, who we thought were fantastic and really deserve some

attention so um every year we run a cap intro event just for these you know breakout managers uh next one's coming up um april 13th week of april 13th so yeah you know shameless plug there uh give me a call put a link to uh to it in the show notes. Talk for a second about who's coming to you. Are there people coming out of China, out of mainland and wanting an international presence? Are they already international? Yeah, when we started off, it was Pan Asia. So we had managers from Japan, we had managers from Singapore, China as well. And then about six, seven years ago,

I came and I took over the business more full time. And we did a study, we had a look at, we knew that there was a massive demand for on the ground China talent. This was without a doubt that demand was there. It was going to grow. We knew that. We knew that because you could see the flows of capital coming to Hong Kong, coming to China. China had a fantastic GDP growth story.

A lot of the global allocations into China were still run through managers out of New York, out of London. And a lot of the allocators who were talking to us felt that this is not really the way it should be. The inherent philosophy of having on the ground managers is key to driving returns. So let me pause you real quick there. So you had there was maybe a U.S. pension is getting their money offshore. It goes to Hong Kong and then gets into mainland China to trade some of these companies. But the trading of those companies is being run by someone in New York. Yeah. Yeah. I mean, how can they be doing a good job of analyzing those trade? Like, let's get someone on the ground. Exactly. Exactly. That's kind of it. And, you know, for the most part, you know, accessing

China is primarily through Hong Kong. And Hong Kong is an open market. It's a global market. You can trade Hong Kong from anywhere. Data is available as much here in Hong Kong as it is for anywhere in the world. So a lot of the managers who are trading China or getting exposure to China were like, OK, well, I don't need to be there. Of course, now we know that's not true, right? anywhere in the world. So a lot of the managers were trading China or getting exposure to China. We're like, okay, well, I don't need to be there. Of course, now we know that's not true, right? If you want to trade the jurisdiction that you want exposure, you need talent on the ground. And we saw that. We saw that demand. And at the time, we thought that demand would pan out 10 years, right? It would take 10 years for that demand to grow we didn't realize at the time that the demand for talent would grow exponentially um so 2016 2015 there's the crash

the china market crash and something really weird happened is that whenever you have a crash like that you have a huge demand for uh you know it, it's an opportunity. It's an opportunity when you have a massive crash like that. And suddenly you had a lot of questions or a lot of questions, a lot of interest in the market because now you have a once in a lifetime dip. Demand for people who could go flat or go short. Exactly. Instead of just holding on. Exactly. That's right.

So we looked at the talent pool in China, right? And at the time, okay, so you look at the Eureka hedge index right now, or the Eureka hedge populations, roughly 15,000, 15,000 names on the Eureka hedge. So that's, you know, managers are all different sizes and it doesn't cover the entire population, but you have 15,000 covering, you know, 50 countries, 200 different strategies, et cetera, right? So we went and we looked at the equivalent of like a hedge fund license in China, what they call private license. The private asset management license covers roughly 15,000 to 20,000 names or 15,000 to 20,000 managers or 15 to 20,000 managers. So you have, that's a massive number right now. Right. That's like, I thought there was like 15,000 hedge funds in the world. Yeah.

Yeah. Right. There's one of those hedge fund managers who jokes that there's more hedge funds than Taco Bells or something, but yeah. There's a lot of Taco Bells can talk about taco belly i love taco bell in high school i was big i was like 205 football player and i would go every day get four soft taco supremes four hard taco supremes probably i'm glad you went for the supremes i'm glad you went for the supremes oh yeah you got to get the sour cream in there yeah exactly um yeah so exactly so you have like you know 15 16 000 of them which is still you know and it's growing right so we're thinking if we could tap into just you know one percent of that talent and we're saying, okay, how do we merge this pool of talent, help them upgrade themselves, restructure them to the point where they're at from a regulatory level, from a compliance level, at the standard that institutions are looking for.

It doesn't have to be an A plus, right? As long as we can get them anywhere in, you know, a passing grade, right? A B, a B minus, a B plus, you could have a tremendous opportunity here to help, you know, onshore managers raise capital and help offshore allocators generate. And to me, when you say that, like that might make some people nervous of like, all you need is a B minus.

But I think more we're talking about, there's table stakes that you have to have in terms of risk controls, everything. Maybe you don't have to become an A plus and have like biometric entries to your office and things like that, right? Or like security guard, like some of these, that's the a

plus right of the firms that have every single box checked on like a 80 billion dollar pensions allocation so i get what you're saying i'm like no you you can still be a b and be one of the most you know sophisticated shops in the world yeah oh exactly i don't want to name names but you have plenty of you know bb plus shops in in U.S. that are managing tens of billions, if not hundreds of billions of dollars. Yeah, exactly. So everything we're just talking about to now is still accessing China, but through Hong Kong and through the, so it's not directly trading A shares. Let's give it, give the world a little landscape on what's, so you have China A shares, which is their stock market. And then how do you trade those through Hong Kong?

So Hong Kong, so Hong Kong, I don't know if I have anything to add here, but traditionally you needed, in order to trade onshore A shares, onshore A shares are China shares, basically, and they're listed in China. You needed a license, a QFII license in order to trade that. And so that would be only for qualified foreign institutional investors, right? Hong Kong opened up this gamut in order to open up access through the Hong Kong Shanghai Connect program. That Hong Kong Shanghai Connect program means that you can execute and settle through Hong Kong brokerages

and it grants you access to a certain percentage, roughly half of the stocks that are available in China. And so if you are looking at- I'm buying the big US hedge fund. I don't want to risk putting my money on Shure. I'm going to go through a Hong Kong brokerage. And this could be a big shop like UBS or something, right? Like whatever, it could be Goldman.

It could be a big shop. They put their money through Hong Kong Connect. Everyone's happy. They take some spread on it whatever exactly exactly so and you know there's hong kong is it's a it's a global hub so all of the brokers here ubs golden size interactive brokers um you know the list goes on and on um so that i mean that is a very well established um protocol and and like decades or at least a decade yeah at least a decade yeah yeah very very proven and that's different than if i there's hong kong shares as well right but those are at a discount or they're

at a premium to the china shares yeah i mean it mean, it depends. It depends on the flow. Sometimes there are discounts. Sometimes there are premium. The onshore market is massive. I don't have the numbers on me, but it's multiple times the size of the Hong Kong market. for these great companies that are looking to either do a list or even have an initial or an IPO in the global markets, more so today than ever. And so that's the stock trading, essentially. But now China's also coming along with futures markets. So we wrote a blog post about, I don't know,

it might've been a year ago now. We'll put it in the show notes that they're in the billion dollar, billion contract club now, not dollar. So they're global, you know, collectively across all those exchanges, they're trading over a billion contracts a year, which is basically just Eurex and CME are the other two that can claim that. So maybe ICE as well. I don't know. But so impressive, all that volume. So kind of talk us through the next stage now, like, hey,

foreign Western money wanting access to those futures markets. Yeah, the two, I think the two untouched vestiges of Alpha and of opportunity for China right now on the trading side is the bond market and the futures market. So just quickly touch on the bond market. Foreign participation is like single digit right now. It's still single digit. There is access to the C, I think it's the Chinese interbank market system, allows foreigners to invest into onshore corporate bonds.

But that's a massive, massive market. And it only, foreign participation is, it's doubled, but even doubled, it's still under 10%. It's like 5 percent I think it is uh which is which is insane so we do see a lot of uh potential there the futures market is also very well what kind of corporate do you have any idea what the yields are the what's first off what's the government yield is like two percent versus our zero? Yeah, yeah, it's positive. Yeah.

So I'm assuming their corporates are even, you know, a similar spread above our corporates. Yeah, and I think more importantly, the demand has shot up for it over the last year. I mean, it's no secret that, you know, you look at the way the balance sheets are moving between the majors like the US, Europe, and China. China's first in, first out.

There's a lot of talk about decoupling, but I don't know if it's decoupling as much as China's just a leading indicator because it came out of COVID before. Like you said, you've been back in the office for a month. Exactly, exactly. I don't think it's so much, I'm not convinced yet it's so much decoupling as it is just that, okay, you know what? CSI 300 is already up 40% year on year. You know, trade volume has gone up.

Even the commodities trading is up 50% year on year, we've got to cool things down. So you have the government really tightening up on the M2 monetary supply over the last quarter. And you're seeing that reflected in the stock market now. Markets are down 8% or something like that. Or they're down a little bit, but still year on year,

the CSI is up 40%. So they're taking a bit off the top, but this is indicative of how the policy, the government is looking to hopefully stave off something more disastrous later. And what did you mean when you said China's first in, first out? Oh, first in, first out means the first into the COVID situation. Got it.

Yeah, yeah. And the first to come out of it, yeah. So the logic there is that the economy is healthier, it's recovering faster, and that these corporate bonds have... Yeah, it's massive. Me, as an investor, I'd worry that the government there can pick winners and losers, right? They could shut some company down and you could lose everything in the bond deal. But I think as a Westerner, I have preconceived notions about that. And there's plenty of fraud and similar things in the Western countries.

You just get worried about it. I was joking about this. If GME, if GameStop happened in China, everyone in the U.S. would be like, oh my God, look at what's happening over there. They let some message board drive a stock up 4,000%. Those guys don't know what they're doing over there. And here in the U.S., it's like, oh, they're brilliant. Look at these retail heroes.

That's right. Yeah, there's definitely a lot of way flagging. I think flag waving. I think also if what also is ironic is you look at this. Massive retail participation that's happening in the US, this massive flood of capital that's helping retail. And weirdly enough, this is kind of what's been happening onshore in China for the better part of the last decade, massive retail participation versus institutional trading, institutional investors. It's almost black and white, right? It's like 70%, 60%, 100% retail participation in China. And while it's not quite that level in the US right now, I think just the sudden spike in retail, you know, retail participation is changing the dynamic and the signature of the volatility to make the US

look a lot like China that it was, you know, that has been over the last decade. And do you feel that Chinese retail participation is because the institutional is invested elsewhere? Or be just because the individuals are that much more into the market? Like, are they taking more of their savings and putting into the market than US people? Yeah, I think, I mean, when the if you look at it, the Chinese stock market has, in plain catch-up, it's developed very, very fast. It has much shorter history than other global markets. consumers and individuals and a growing middle class, which is now, I believe, the middle class is larger than the U.S. middle class in terms of spending power, then their participation in a speculative market like the stock market, for example, is going to be much higher.

Now, to answer your question about institutions, as a policy, institutional institutions are very conservative. And sovereign policies have made it more challenging for them to participate in the equity markets historically. But that is changing because they have, you know, they have a drive and they have metrics for yield as well. So we will see that start to open up. And that leads me back to futures because those same institutions have a mandate for a yield. And so they're looking at alternatives. They're looking at things that can help when the markets go down. I'll back up and we'll talk about QFI because that's what was supposed to enable that participation.

So explain to us again what QFI is, how that helps get money onshore into China. QFI is basically a it's kind of like a channel through the that's built for capital controls to allow foreign institutions, investors to access onshore markets. So previously, it was primarily the capital markets like stocks, to some limitation of bonds as well. Most of it was also it had a very high barrier of entry, meaning the license could only be issued to very, very large institutions with and a quota would be applied to it. And let me back you up for a second. So the 30,000 foot view is if I have a hundred million dollar family office here in the U S and I want to put 10 million into China, I've met some great guy on Alvin's platform.

That's trading Chinese futures markets. I can't fund him, right? I can't put my money into China for him to trade. Previously, you couldn't. So QFEE is a method to say, hey, we're trying to allow some of this international investment through this QFEE protocol. Exactly. They want some investments through the QFEE protocol. The idea is to help make the markets more efficient, to help drive more competition. In particular, with the commodities market, there is still quite a bit of dispersion between the spot and the futures market. And so regulators do see a huge benefit for having more international participation to equalize it with international dynamics.

Far better way. Yeah, exactly. So I think, I think this is, this is a win-win situation for both the offshore investors and onshore investors. And what QFE is, has now the QFE regulators have now done is they've opened up the regulation to allow more investors to come

and access onshore. And it's still not, you know, retail guys still can't go in and get his own QFE license to do it. But a lot more, a lot more entities are allowed on. So anyone with an established firm, you know, decent size AUM or is properly regulated in the respective jurisdictions and agree to abide by the regulations onshore, it's more possible now. It's easier to get that license. But the key here is actually not just who can access the license, but more importantly, the products that can be accessed so we talked about bond market now the futures market is on the way they're still working out the operational pipes to allow for that and the rules for that but um the future basically said hey you can do futures now

through qv yeah we'll let you know how stay tuned which. Which was what? Four months ago? November. Yeah. Yeah. Yeah. Regulators tend to be like that, right? I mean, they're not particularly known for keeping a great timetable. Right.

And they don't have to be reelected or anything over there, right? So they don't have any of that pressure. Just we'll get to it when we get to it. That's right. Sorry, I cut you off. The futures piece was passed. It's a new rule, but it hasn't been figured out yet. Yeah, because

you have a lot of exchanges that need to get involved in terms of the rule set, in terms of the pipes. CSRC does have regulatory oversight, but you do need to integrate with a lot of entities to make sure that execution clearing is going to be clean. But the opportunity set is enormous. I think you and I were talking earlier about the size of the nominal exposure, the nominal trading.

It's like CME is like 53 trillion or 55 trillion or something like that. Shanghai and Dalian combined is 25 trillion US dollars. So it's already half of the CME. Yeah. Which is enormous, right? I think what is also interesting is the trade volume or the turnover, right?

Turnover on the CME is something like 45 times a year. Turnover on the Shanghai futures exchange is like 250 times, right? Really? Which is insane. Or like even Dow Jones, like 150 times, right? So you have a lot of trading activity there. It is a lot of trading activity there it is spec it is a lot of speculative behavior as well and so having more competition and more participants come in is going to help

mature these markets and i think that's good for everyone well not everyone because we a lot of managers we talk to who run the data and they're like this is like the good old 80s with directional volatility you know and these markets are moving they have more pronounced trends longer lasting trends um which maybe that is because there's more speculation or less are being away or there's less high frequency firms over there that are that are taking the other side so whatever the reason they're seeing a little bit of that although i feel like it's starting to erode away a little bit but and also interesting to me is just the markets over there so you have like rebar concrete and polyurethane and like these markets we don't have here so it's also another

allows you to expand your market and it allows you to be like that's where the action's happening right like sure we're consuming commodities here in the U.S., but nowhere near the scale that they're consuming them in China and in Asia overall, right? Yeah, the staples dynamic and just the menu there is vast. Yeah, I was going to go. I have this list here. I'll just read out some of these markets. PVC, I don't know if that's like the pipe, hot rolled coil, low sulfur fuel, coke, apples. I want to trade apples, not apple, apples.

And then normal stuff like copper, iron ore, palm oil. So those are some few, those are some good ones. We need to get a sticker made. I trade apples, not apple the stock. Apples. So that's futures. So in theory, when this opens up, someone could come through a firm like OPIM and trade futures markets there, right? Yeah. So next though,

they also said when they updated the rule that you could invest in onshore hedge funds, right? That's right. Actually the onshore hedge funds came first. Right now you are allowed to invest in onshore hedge funds through the QFE license. And, and that's, that's an interesting dynamic because it allows a lot more, far more allocators to do what huge institutions have been doing for the last decade, like CPPI or Harvard and all these other major institutions have been able to access onshore managers directly through their QFEE license.

Now it's expanded to medium sized and even smaller sized allocators. So that's going to level the playing field a little bit as well. I think the question, I think the elephant in the room is, well, if more capital is being allocated to, onshore, where's Hong Kong's role in this? Well, I think these are two completely different type of exposure and risk profiles. I mean, if you're investing directly into managers onshore, you are also subjecting yourself to onshore regulatory framework, which is different from Hong Kong regulatory framework. It's improved leaps and bounds, and it's going to meet the level of Hong Kong and global standards very, very soon. But I'm not sure, I'm not sure from what we talked with some allocators, they're not yet comfortable going the full extent. So Hong Kong is still kind of like a stop,

stop and go point for management regulation. Although you can still access the same products through Hong Kong. And so wasn't that private fund QV was available for like five years ago, right? But they never filled it up? Nobody could fill that quota? Yeah, I think generally the QV, first of all, the number of holders was not a broad, was not a very deep bench. Second of all, there was of holders was not a broad, was not a very deep bench. Second of all, there was a quota that was applied. So if you have a quota for QPR, are you going to use that quota to invest into entre managers?

Or are you going to use it to trade more broadly on the stock market, for example? You only have so much ammunition, so you have to decide how you use it. Like you mentioned that there's this kind of an to decide how you use it like you mentioned that there's this kind of an arb opportunity or you didn't say that i brought that up but it seems to me that's like prop traders would want to come in and say hey i can trade u.s soybeans versus china soybeans and either electronically or uh fundamentally have some sort of arb going there so So is that like the Chinese government actually would have kind of appreciate that

and kind of arb away the bigger spread? Yeah, to an extent. That's as a function of making the markets more efficient. You know, there's definitely that intent. And it creates a great opportunity for offshore investors to come in and help sort of widen and broaden the investor base for those markets as well. And then in theory, those investors can come in now on their seven approved markets, approved futures markets. But how does that work? Like a U.S. investor can't trade them directly yet?

So right now, as of now, U.S. can come direct even through these international markets. Cannot. Cannot. Yeah, cannot. You know, hopefully that will change over time. Moving forward, the QFII, when we're talking about global allocators, they can access the five to seven international markets. In terms of the product lines, I think after the QFEE rules come out, that's going to expand to 71 products, I think it is, 71 or 72 products, which is going to be, as you say, is going to be very, very interesting. Yeah. But you think that will happen like all at once or it'll go from seven to 20 to 42? Yeah, I suspect it will be staged out. It is taking longer for those rules to come out than we originally thought. But, you know, Jeff, you'll be the first guy I call the moment I get the green light.

Do you have any like do you have any experience with other rules of how long it took? Like, could it be six years or what are your thoughts? I think it would be, I think there would be some serious, you know, some serious political issues if they were not able to deploy it this year. For them to issue an announcement in November and be that bullish about it and have that much momentum behind it, but still have it delayed for longer than a year, I think either they might have found some mechanisms that need to be fleshed out. And hopefully, even if there are, they'll be transparent with us so that we know where they are on that roadmap. Or maybe foreign policy or even domestic policy has shifted by then. But my expectation is that they'll at least give us some guidance over the next quarter.

Awesome. Give me the landscape on like, I'm going to back up to your platform and the landscape of like what these managers are doing. So are they all over the board? Are they long, short equity? Are they distressed debt? Like, give me give me the landscape of what what people are running over. Yeah, most of the strategies. I mean, I'm not sure if our platform is anywhere indicative of it. So managers that we're working with are mostly equity long short, which in itself doesn't have more than a 10-year history, simply because if you're to do, say, a market-neutral fund,

market-neutral fund requires single-stock shorts. Most of the shorting was done through index futures. So having more complicated paired single-stock shorts against your longs, market-neutral within plus or minus 10, it's still challenging to find. But there's some really great managers who have built that expertise over the last few years. That space is growing. The quant space is still very, very big, meaning that there are actually a lot of quant managers in PRC in China who are looking to come offshore. That's not necessarily a function of alpha as much as it is a function of data. Data is very, very efficient in China. It's very inexpensive to acquire.

And in terms of reliability, technical data has historically been easier to acquire than, say, fundamental data, which fundamental data, say, cell-side research, for example, has only really caught up to international standards in the recent five years. So, and even then, not all of the names in China are covered. So you still have a lot of alpha on both sides. Alpha in terms of finding managers who have been on the ground to understand the technical dynamics of the market and squeeze alpha that way. And then you also have an opportunity set from a fundamental perspective because not all of the names are covered. So if you can find managers who have very, very strong proprietary research methodologies, then you'll see that there's a tendency for them to outperform as well.

Do you see that this talent maybe used to go to the US and work at a whatever Goldman or Millennium or whatever big hedge fund you want to pay and now they're staying onshore or even yeah yeah you're right um in the funny you mentioned that when we first started on this on the search for talent right six years ago and even to extend you know more recently we first started on this, on the search for talent, right, six years ago, and even to extend, you know, more recently, we do have a, we do not have a preference, but we do find that those who have had some experience in global markets, not just New York, it could be London, overseas, and maybe some of them work for sovereigns in the Nordics, who've come back and they said, you know what?

I've kind of hit the glass ceiling, you know, in New York or in London. There's a tremendous amount of capital in liquidity in China. Raising capital for them in Shanghai is going to be far easier than for them to set up their own shop in New York. And so naturally you're going to go where it's easiest to raise capital. And a lot of them have set up very successful firms as a result. Do we have any, you have any stats on like the size of the onshore hedge fund space? Like in terms of assets?

I know I didn't prep you for that. Sorry, I'm just throwing throwing darts at you but so i'm curious what that would be in turn uh in comparison with the worldwide or the u.s so the china private fund industry right now is roughly two and a half trillion u.s dollars okay so that's up um that's up like 25 percent from last year, which is enormous. So the hedge fund industry onshore is a very, very important driver in terms of wealth management access and high net worth and corporate investments.

And so my follow-up question would be, well, one, does that include what we would call a mutual fund in the U.S.? No, it's not mutual funds. It's not just mutual funds. Some of them do have the license to run mutual funds, but this is primarily private funds.

Okay. And primarily doing like most of them are still along the stock market or they're doing alternative strategies. Yeah. Yeah. They, I mean, they have access to all the markets there, right? So CTA commodities fixed income, they have access to the stock market. The vast majority of them are long-biased. The growing long, short, or market-neutral funds is still a relatively smaller population,

but it's growing every day. Those who are long-biased might open up different products to their investors to allow them to diversify. So I might have a long biased portfolio or product on as a core, but then I'll offer a CTA product on the side to help you diversify plus a fixed income book for you to round it off. You know, that doesn't include the private equity space. Got it. Well, really? So yeah, out of our US is whatever three or four trillion, whatever their hedge fund numbers at that's mostly private equity I would say. And then follow up to that of okay that's the size industry now what's the makeup of those investors? So is it all over the board? Is it a lot of institutional? It's less so institutions.

It's more so private wealth, family offices. There is institutional participation because, but it's more of a trickle down effect. If I recall correctly, institutional investors can access private managers through fund of funds or through mandates. I don't have the exact breakdown of it, but it's probably not as overwhelming as we would be led to believe. And most institutions are tied to the government somehow, so there's restrictions on like they can only be with a state-owned entity

or something like that? Not necessarily state-owned, but they might have exposure limits, for example. A lot of the institutions say, which are also themselves securities companies or wealth management companies, There are limitations that they have to investing in private fund management companies or privately managed fund companies funds. So I think, you know, there's still a dynamic there of competition onshore that we'd have to explore.

And is that, tell us a little bit, they're kind of infamous in China for chasing returns. So what do you see there in terms of like what return profiles and risk profiles they're willing to accept? Yeah, I think China's come a long way in terms of their appetite for risk and also their expectation for returns, right? I remember about five years, I think it was, I met with a team in Guangzhou and we were looking to raise capital or help raise capital for an offshore manager that had fantastic, you know, very, very respectable performance, about 15%, roughly 15, 16% max drawdown of like 6% or so, great sharp. And we introduced them to a couple of wealth managers in PRC. And they said, you know, this is, you know, very mediocre performance. I was like, wow, are you kidding? Mediocre performance? And they're like, well, we can get this type of return eyes closed with any of the products that we can buy online even at the time.

And there were a lot of distribution of funds online, still is to an extent. This was a period where the government was going through the process of restructuring guaranteed products or structured products that were the underlying might be project financing and it was giving out permissory type of structures for 15% guaranteed returns.

So it's kind of who you knew versus what you knew? No, no, this is very ubiquitous. It was very widely accessible in the market, right? Now, fast forward to 2021, guaranteed products are no longer allowed. P2P product has been greatly reduced. So P2P or peer-to-peer lending has been greatly reduced. That's where a lot of the yield went as well. Yield chasing was going as well. Equity returns historically have been, you know, a lot of

these onshore managers are generating massive returns because of their ability to capture inefficient markets and speculative market dynamics in China. Numbers you were seeing in 2015 were like 70% right before the crash. After the crash, those expectations start to temper down. And now they're coming closer in line with what global hedge fund managers are facing. So it's getting better. It's getting mature. And it's great for competition.

Even on the fees, you're seeing fee compression starting to occur, right? We were talking about this earlier, right? Historically, you've seen fees of like 3 in 30 or scaled or tiered fees where if they generated more than 20%, then the fees would go from 20% to 30% to 50% if they generate more than 50% returns. Management fees could be as high as like 3%, 4%, right? Which are, we're all kind of salivating at the bit.

Yeah. Right. But now you're seeing, you know, traditional equity long bias managers now, you know, more in line, right? 2%, 2 and 20, some cases 1 and a half and 15, because competition has become so keen and smaller managers are looking to compete with larger managers, especially if they can show some talent. And what, as you mentioned that crash, is there, was there, is there pushback on, right? They instituted no short selling roles and a bunch of other stuff. So I know that killed the, that futures contract kind of overnight,

the stock index futures contract. Yeah. In terms of these managers, like if I had a nice long, short book, all of a sudden I only have a long book. So any bad experiences with that or stories you can tell? I don't have any that come to mind. It was quite a while ago. But I can say that it was, you know, super challenging for the regulators to figure out because you had to stop what could have been a very disastrous event. in terms of trading. Even a repatriation of capital was temporarily halted just so that they could sort out where the unwinding was occurring. But afterwards, they did actually start relaxing it. So we are seeing derivatives come back to market, shorting now coming back to the market

with new rules that allow them to be a little bit more dynamic. And that opportunity set is growing over time. They're also relaxing more margin financing as well to allow investors to maximize their dollar. Even for QFU holders who are coming onshore, they are providing margin financing or allowing margin financing to occur for offshore investors. So even after you bring the capital onshore, new rules allow you to more comfortably maximize that exposure and across more products. So, yes, that was a tough situation for everyone, for both investors domestically and institutional investors offshore. But they learned a lot from it. And one thing, the regulators are really good because you only have

one party is that they can move really quickly with regulation to reopen. But I think that's the overarching fear, right? For anyone trying to put money in onshore is, okay, what if they monkey around with the market no offense monkey king back there but what if they uh mess around with the market and then what if they halt repatriation like you said like if they don't let the money come out that's the ultimate uh no no so i feel like that's always going to be a headwind um there until it's just become right i guess it's not in hong kong people have no trouble sending money in and out of hong kong so it's like it's going to be a headwind until

it's not i don't know how they you know garner the confidence over decades or something until people are comfortable with it yeah i think it goes both ways too i think after the um in terms of there's the fear of offshore investors um being able to repatriate capital there's also the fear of the government or the fear of onshore investors getting burnt uh or at least the economy getting burnt um i mean you and i remember the asian financial crisis 1997 was brutal for a lot of the economies here. And those economies that did implement capital controls were saved as a result. So when you look at it from a very, very short history and a memory of that, the regulators't put ourselves at the same risk that we did in 1997 when all this hot money flowed in, flowed out and destroyed both the currency and the economy at the same time? So they're kind of trying to strike that balance. And so, you know, hopefully we can find a happy medium.

This all sounds super confusing. So it's like you need a partner over there, right? Like to navigate all this, you could take years and years to just to figure out how to get through QV, but let alone into private funds over there. How do you do the due diligence on the private managers, on the brokers on shore? So what you have a pitch, just work with OPIM. So, yeah, it's, it's still, it's not as confusing as confusing as what it sounds like. It's actually pretty straightforward. But at the heart of it, it's about how comfortable our clients, allocators feel about taking that step. And this is something that we completely understand. So where... I'll say full disclosure, we've partnered with OPIM to like do this access and gain their expertise to our clients. So in full disclosure there, but yeah, go ahead.

Yeah, yeah, exactly. So, you know, we're working with partners globally, with the US, we're working with RCM about bridging that gap. One thing and one language that we speak, you know, in common here in Hong Kong with the rest of the world is that of compliance and regulation. So that's probably 70% of the value here that we're looking to provide to our allocators. Going through the pipes and the infrastructure is administrative to an extent. Getting capital through and finding the right markets and the products is something that is par for the course.

So it's about providing that trust. If we can provide that trust and help our allocators comfortably build that portfolio here, it's good for everyone. For us, it's about building our network, about building our core competences. It's about leveraging everything that we learned in the last decade here in Hong Kong, working with managers and working with the regulators. We found it to be a very, very lucrative opportunity set. And I think it's time that we sort of shared that with our investors and our clients.

So this is the first step. Amen. Let's pull the lens back out and just look at asia overall i know we had a discussion maybe two years ago now about i thought it was korea was allocating a bunch to alts so just uh give me the overall landscape of x china okay um i'll be frank i don't know that I haven't, I haven't caught up on ex China, what like Japan and Australia just yet. Okay. Let me, I think China, ex Japan, ex Australia. Yeah. So like, I mean, probably because Japan, the appetite for alt is so low, it's tiny.

It doesn't even show up on, on the blip simply because the domestic market is, is, is, is so low, it's tiny. It doesn't even show up on the blip simply because the domestic market as an institution and as a culture is very risk averse. So finding talent in Japan for us has been very, very challenging. You know, with Australia, Australia is its own market.

It's dominated by the same super funds. And there's some great managers there that we're hoping to work with over the future. Korea is interesting in so much that their appetite for cross-border products has historically been very, very strong. all the institutions like the Samsungs, the NHs, the KBs, the Marais, they're very active in both the private equity space and the liquid alts globally. Now, what happened a couple of years ago, though, is they probably got a little bit, they probably got a little bit structurally, they got themselves into a little bit of trouble when they were allocating to some managers that didn't really meet or perhaps they did the due diligence and something slipped through and they ended up with some very, very, you know, scandalous investments. One of them, and I won't name them exactly, but one of them was essentially betting on German rates not to go down. It was roughly a billion U.S. in exposure.

As everyone knows, European rates are down. Yeah. And it was a bulge bracket that actually arranged that deal for them. So they got caught on the wrong side of that. Regulators got got involved because there were a lot of retiree pension capital that was involved there. And so a lot of these allocators had to pony up. There were some investments in Australia, investments locally, where managers were financing short-term obligations with long-term sources of income. And obviously that Ponzi scheme for another word for it, it just doesn't work out. It works until it doesn't. So they got caught on that. All of this, I think there were three or

four scandals that hit Korea all in one year. So overnight, the regulators tightened up and restricted allocations to offshore managers. So we're waiting to see how the regulators are going to restructure the new framework. But once they do, you still can't stop the appetite for yield. And it's still very, very strong domestically, in a big part because domestic sources of yield are limited. So they have to go overseas. And then what's economically, right? Like during, before COVID hit everything, there was a lot of manufacturing, everything was moving to Vietnam and Thailand.

Like you still see that kind of pattern? Or is China going to remain the low cost labor capital? I think the story is probably a little bit more complex. Yes, naturally, you're going to see diversification of plants going out to ASEAN, Thailand, Vietnam, Malaysia. We were in Indonesia last year, just checking out the landscape. Same population as the U.S. And it's only 50 percent banked right that means only 50 of the population have a bank account right so that's

a massive massive opportunity with a uh with a population the size of the u.s and that's like 95 percent of new found species anytime there's an article of like, we found a new species, it's in a jungle in Indonesia. Exactly. It's a jungle. Exactly. But it's not a jungle anymore, right? Like, I mean, it's not a jungle.

Like Indonesia is not a jungle anymore. Like the place is completely kitted out. They have like the Ubers and they have, there it's called Grab. It's very, very high tech. There's more mobiles there than there is bank accounts. So the dynamics of that economy are changing, sort of leapfrogging ahead of the traditional industries

and into new economy a lot more quicker. So when we see the movement of manufacturing and investments out of China into the ASEAN space, it's partly as a result of diversification in manufacturing, but it's also a diversification of Chinese industries moving into these areas as well, actively and opportunistically to capitalize on a growing market there. Right. So is that a lot of Chinese money is setting up, investing in those facilities and that's what's building that huge middle class and these two and a half trillion of hedge fund investments in China. Exactly. That's exactly it. So it's really exciting. You know, we talked about manufacturing. You know, one of the linchpins of of in a lot of the short books were betting that china could not convert its gdp composition from uh like manufacturing and and agriculture into services right this is like a big sort of the thesis um and strangely enough just in the last five years, in the last decade, they managed to make that move, uh, into the service sector.

Um, 97, I think the number was, the number was roughly services in 1997 were roughly 20% of GDP. Now services represent more than 50%. Really? Which is insane. And then you think about the GDP of Delta Pi growing, which is now roughly equal to 70% of the United States, right? US GDP is roughly $20 trillion. China's right now at $14 to $15 trillion, which is insane. Yeah. I thought china had passed us but next year yeah yeah or the year after well they're targeting ahead of schedule 2028 now is is what they're targeting and so in all those so it seems to me that the investment appetite in those other what you caught asian asian asian that's what asia oceanic association of southeast asian nations uh-huh good something new today asian um

so asian that's more about like a these kind of big macro investments instead of like we're finding a long short manager who's just thai thailand focused or something does that exist or very limited yeah yeah actually we have been getting more and more in the last three years we've been getting more requests for managers who who know how to trade those markets. Now, the bottleneck for ASEAN outside of Singapore is just the markets or the companies that have listed into those exchanges. The exchanges themselves are very shallow.

So as a strategy, as an allocation strategy for institutions, it can only represent a very, very small percentage of the book, but that's going to grow over time simply because of the amount of capital that's moving into those areas from an economic perspective. So as more and more of those companies reach the size where they can hit the capital markets and those markets get deeper, like Vietnam and Thailand, for example, it's going to get very, very exciting. I think Vietnam is one of the outperforming markets of the year I need to go back

and check that book I think it was Vietnam yeah Vietnam and Philippines well at least that was from our US China trade war right of like Apple and a few others are like oh my god we got to diversify and get that get into vietnam so we were on a call a while back and my was downstairs during our call watching clone wars with my daughter so i just got to get your quick uh thought on clone wars and star wars overall as

you drink from your mug. Yeah. Well, which part? This could be another hour and a half, Jeff. Yeah, we'll just go quickly. So you're one of the few people over 30 that I know that have watched every Clone Wars episode. Yeah, I have. Yeah, I've watched everyone, including the extended ones that Filoni,

Dave Filoni, who is the master in recovering and saving Star Wars from the debacle that it was two years ago. Yeah, I think bringing Ahsoka to life was kind of the backbone of that. I'm probably one of the few who actually own a replica of her lightsabers. It was built by one of the... Lightsab lightsabers right is one longer than the other that's right one is a shoto and one is a main yeah yeah yeah yeah i'm still looking for a stand for it but it's it's fully operational it's all machine cut cost me a pretty penny to commission it but um i'm gonna have it in my office you know. You didn't bring it to show me? I'm upset. I know.

So we'll work into our favorites here. Do you have a favorite Clone Wars season or episode? That's a really – I think the extended ones, they just got so good. The extended ones where it was Ahsoka versus – what's his name? The Sith. Darth Maul. They actually did motion capture of Ray Parks playing

Darth Maul against Ahsoka who was another actress. That was phenomenal. They did that for TV. Not just for TV but for an animated series. They have too much money. And then you

enjoyed Mandalorian? Yeah. I thought it was a great rebasing of what was true Star Wars. It was very western. Old school western movies.

It was a gritty feel. It was great not i wonder if they're going to be able to like what are they going to do next like baby yoda was tough act to follow it was they can do it yeah well disney owns the world now right they they're they're on a roll they're knocking out of the park with star wars they brought it back from the dead they're knocking it out of the park with Star Wars. They brought it back from the dead. They're knocking it out of the park with Marvel. Yeah, I've heard about some Disney stock. When they announced Disney+, Scott Galloway, who I listen to his pod all the time, he was like,

this is going to be, it's like everyone with kids under the age of 15 is going to have Disney+. Are you kidding me? It's a no-brainer. It's a no-brainer. And then once the parks start kicking back up. And then his thing is if you have a Disney plus membership, right? Like it'll be,

you can get the extra suite on the cruise ship or extra go into the park an hour earlier. Right. It'll be like Amazon prime. When you go into whole foods, like basically your Disney plus membership will allow you to do all these real life things. In addition to the streaming streaming i didn't even think about that yeah the cross sound the synergies for that to sort of lock you into the the ecosystem that's brilliant

yeah for sure any idea when any idea when the parks are going to reopen uh i do not but that's been on my radar for a while because they have in florida it's going to be the uh replica of like a star destroyer hotel that you can go to and they've got like characters and a bridge and you can basically your room is like you're in the like the the window is actually like a viewport where you see stars and whatnot have you been to the galaxy at galaxy's edge i was there last year before COVID. I think after I saw you in Miami and we did Context, and then I drove up, saw my mom in Vero Beach, and then we did Galaxy's Edge and I flew out of Orlando.

Did you make yourself a lightsaber at the lightsaber? I had an Obi-Wan cloak that I got. It was my slur. All right. We probably have two listeners left here, but let's go through a few of your favorites. So favorite Hong Kong restaurant. I just read about a Michelin star one that reopened or something i can't remember the name of it uh wow that's a hard one it would probably have to be

or i'll let you out if you want a favorite hong kong street food hong kong street food uh it would have to be turnip fried. It's kind of like a fried turnip cake. It's like a, it's like a, not a potato. It's like a, yeah, it's like a fried turnip cake. I forgot what they call it in Japanese, but it's, it's, it's got like bits of ham in it. The staple is this starch base. Then you fry it. I try to deep fry it, but you fry it, and it comes out like a square piece of French fries. It's got bacon and some chives in it.

It's fantastic. Turnips and ham. Yeah, lobaco. It's called mobaco but um favorite tennis player you already named three of them if i had to make you pick it's gotta be fed it's gotta be fed all right federer um favorite investing book oh so um one of the guys one of the teams we partner with, Fundseeder, and this is a shameless plug for Fundseeder.com.

You guys should check it out. If you're looking to figure out how you're trading. Fundseeder.com was started by Jack Schwager. He was on the podcast like 10 episodes ago. Yeah. Oh, is that right? Yeah, yeah. Yeah. No. So he's my favorite writer on investing and he's

a great friend and um you know big supporter of what they're doing over at funseater so uh so check him out i think he just came out with a new book called undiscovered wizards yeah yeah yeah it's actually under the computer i have my the new market wizards oh you're right it's called was yeah unknown market wizards yeah unknown market wizards um and then uh finally favorite star wars character which i'm assuming is ahsoka but maybe not just that's your favorite lightsaber setup yeah yeah i i gotta say right now it's ahsoka i mean it was uh it was previously Anakin, but now it's, it's, I got to say Ahsoka's taking the cake because you know,

there's a great story ahead. Yeah. So that's Rosario Dawson. That's going to be a live series too, right? What do you think? What do you think of Rosario Dawson? She was great. Like, yeah. And the get up and everything. Cause you're like, how are you going to make this animated look with like horns basically become a real life thing but they did it they have any issues with them shortening the tendrils uh no i didn't even notice that so yeah me neither i thought it was fantastic she did a great job yeah she's good all right alvin it's

been fun. Talk to you soon. We'll put links on how to get ahold of you in the show notes. And best of luck to you. Yeah, thanks a lot, Jeff. You too. Looking forward to it. Have a great day. You've been listening to The Derivative. Links from this episode will be in the episode description of this channel.

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