Alternative investments in a digital age


Alternative investments in a digital age

It featured the world’s first robot to be granted citizenship and actor Will Smith, but the big theme of the 2018 Cayman Alternative Investment Summit was the potential of technology, especially blockchain and cryptocurrencies, with delegates told to embrace the opportunities this can offer the sector. Cayman Funds reports.

Digital disruption is changing industries, businesses and operating models driven by three intertwined forces: the falling cost of technology, the availability of data and cloud computing and the emergence of artificial intelligence (AI).

That was the message from Anthony Cowell, partner, head of Asset Management, KPMG, introducing the 2018 Cayman Alternative Investment Summit (CAIS), the theme of which was Wired: The rise of alternative investments in a digital age.

The conference, which also featured interviews with Sophia—the first robot to be granted citizenship—and actor Will Smith, touched on many aspects of how technology is shaping the alternative investments sector, and also highlighted many other pertinent themes including political and economic uncertainty and the rise of cryptocurrencies, a topic which was the defining theme of the event around the coffee machines and networking areas.

In his opening remarks, Cowell acknowledged that the world is still dealing with the consequences of the financial downturn, with political upheaval and populism causing uncertainty on many fronts. But, he said, despite this there has never been a better time to be in the alternative investments industry.

He covered some of the findings of a recent report by KPMG and CREATE-Research based on a comprehensive survey of operatives in the space. Alternative Investments 3.0: Digitize or jeopardize found that only 2 percent of those surveyed believe it will be business as usual over the next 10 years—because of the disruptive impact of new technology and digitisation in the space.

“Those operating in the industry will be forced to change in order to survive,” Cowell said. “New technology such as AI and machine learning will transform the entire industry. In an increasingly digital world, hypercustomisation will be ever more important.”

He noted that blockchain in particular will mean massive changes for the structure of the industry and leaders will be needed who are able to set a vision that leverages such technology. “The future will be about the interface between humans and machines,” he said.

He acknowledged that the bigger players will be better placed to invest in technology but he also said that companies not embracing technology and digitisation will be in jeopardy.

“The truth is that some of the most important products have not been invented yet. So it is never too late,” he said.

Thriving on change

This theme was echoed by Chris Duggan, director of the Kenneth B. Dart Foundation & vice president, Dart Enterprises, who agreed that technology is changing the world, but said that the alternative investments sector is well positioned to leverage this technology and thrive on the change it will bring.

He added that in some ways, the big topics of the 2017 event—Donald Trump’s becoming US president and the UK’s vote to leave the EU—remain equally relevant today.

Even in the last 12 months it has become increasingly clear that technology will change every aspect of people’s lives—and the alternative investment space in the process.

Duggan also stressed the commitment of Dart Enterprises to the Cayman Islands, noting that it has already invested $1 billion in the country and there will be more to come as the company further extends Camana Bay and invests in more hotels.

“We are committed to Cayman and continue to invest; we have strong confidence in the country’s future and we want to ensure it can cater for the needs of luxury travellers, investors and business travellers. We are very bullish on the future of both Cayman as a whole and this conference,” he said.

Enhanced humans

Other speakers explored the potential impact of technology in more detail. Maurice Conti, chief innovation officer, Alpha, which is billed as Europe’s first moonshot factory, said the world has entered a new information age and the pace of change means it is increasingly hard to predict the future. He believes the future will revolve around ways in which the natural capabilities of humans are augmented by technology.

Conti offered the view that the reality of the future will not look as it may be portrayed in Hollywood movies—instead, technology will enhance the capabilities of human beings.

He argued that anyone who owns a smartphone is already a cognitive augmented cyborg—because you are directing technology to enhance your knowledge and understanding at the touch of a button. “However, machines still do nothing without our explicit direction—we force our will on our tools as we have done for millions of years,” he said.

He said the next step, which is already being taken, is for a computer to be instructed to find a solution to something within certain parameters. He gave the example where a machine had been instructed to make the most efficient design for the body of a drone. It was able to explore millions of options and geometries that human beings could not imagine before arriving at the ideal solution—which was almost identical to the pelvis of a squirrel.

“Evolution works in a very similar way,” he noted.

“Most computers have to start from scratch every day because they never learn,” Conti continued. “The rate of change is getting faster but there is no reason to believe that an artificial intelligence will be created based on human intelligence.

“First, we can barely understand our own intelligence, never mind replicate it. Second, there are many types of intelligence—why base it on ours? Finally, anything like that remains a long way off even for those at the cutting edge of things.”

Instead, he believes, the future of AI for now will revolve around the development of very specific machines able to solve specific problems—such as the case with the drone.

“We will move into the age of technology augmentation, which could be the next great era for our species. It is an incredible moment and the time to get on the bus is now,” he said.

Getting virtual

Another speaker discussed the potential of virtual reality (VR). Professor Jeremy Bailenson, founding director, Virtual Human Interaction Lab, Stanford University, told delegates that VR is increasingly being used by companies for a variety of things impossible to achieve without it. While it has great potential, it also presents risks and challenges for society.

In a presentation called Infinite reality: The virtual world, Bailenson, who is the author of Experience on Demand—what virtual reality is, how it works and what it can do, started by explaining some of the pitfalls.

These include the perils of distraction, with the first death reported recently attributed to VR; addiction, which has the potential to be disrupt people’s lives; reality blurring, where users of VR muddle what they have experienced with real life; and desensitisation, where it might be used to practise things such as extreme violence.

Given these risks, Bailenson argued, its use should be limited to a handful of specific scenarios: those that would otherwise be impossible, those that would be counterproductive in the real world and those that are rare, expensive or dangerous.

He offered some examples of its application to some of these criteria. VR has been used, for instance, to increase empathy with others in a way that counters prejudice on the basis of race, gender or disability. He said that the outcomes of such experiments were far more effective than other practices designed to accomplish this, such as role play.

He has also helped develop a simulation that shows the future effects of climate change, which has been especially useful for lobbying politicians and has also been rolled out extensively in schools and colleges.

“When people directly experience something, they see it differently,” he said.

More companies are also using VR as a training tool, to help staff perform better in their jobs. Walmart has adopted the technology on a major scale and it has been shown that staff trained in this way improve more quickly than those who have not.

“VR can be amazing, and it can be used to tackle some major issues in the real world,” Bailenson said.


Possibly the most discussed topic of the event off stage (although several speakers covered it) was the rise of cryptocurrencies, the blockchain technology underpinning them and what they could mean for the alternative investments industry.

The Hon. Alden McLaughlin, Premier of the Cayman Islands, touched on its potential importance in his opening remarks. He stressed that the attributes that have made the Cayman Islands so attractive to the financial services sector—and the alternative investment space in particular—over the years will also ensure its relevance to the burgeoning fintech space.

The Premier told delegates he was resolute that Cayman would keep pace with technology. “We must grasp the opportunity of technology with our eyes wide open and avoid pitfalls,” he said.

“Advances in technology will disrupt all business sectors and social norms. Change is not on the horizon, it is here right now. We must ensure we are part of that or be left behind.

“We understand that Cayman must fight to keep business and adapt to ensure we attract the emerging businesses operating in the world of fintech. As Premier I am often told that something will be the next big thing and revolutionise the world, but in the case of a technology such as blockchain I think that will be true.

“Our challenge is to understand it well enough to regulate it and embrace it.”

McLaughlin said that a number of companies working with blockchain had already registered in Cayman. The robust regulatory environment, legal system, abundance of talent and tax-neutral status made Cayman an ideal domicile from which to operate.

“Blockchain entrepreneurs might wear jeans but they know a good deal when they see it,” he joked.

“The pace of change will only accelerate. The question is whether existing businesses can keep pace and whether staff can be retained and reskilled quickly enough. These are important questions to ask but the only option is to embrace it.”

Anyone doubting the enduring quality of cryptocurrencies might have been persuaded to reconsider by Mark Yusko, CEO and CIO, Morgan Creek Capital Management, who told delegates that, unequivocally, Bitcoin is here to stay, will increase in value and become increasingly important to the global financial system.

Yusko noted that the emergence of such currency was predicted by some as long ago as the late 1980s and its emergence should not be viewed as a fad or a bubble that will eventually burst. Instead, he argued, money as it is currently understood will cease to exist in the future because of the emergence of such alternatives.

He argued that the fiat currencies are losing their credibility and legitimacy for many. The use of an alternative currency such as Bitcoin has many advantages including the fact that it is decentralised and the fact that its use of blockchain makes it secure and almost impossible to hack.

“We are only at the start of things with Bitcoin,” Yusko claimed. “Everyone said it was a bubble—and in fact we have seen a series of bubbles—but this will not go away. Institutional investors will not touch it yet but that will change.

“Long term, its value will only increase as it disrupts the fiat currencies. Cryptocurrencies could become more important to investors long term than stocks and bonds.”

Meanwhile, he added, blockchain had the potential to reshape almost every industry. He called it limitless in its application and emphasised the fact that it cannot be hacked.

“It will eventually impact every business model on the planet. It is an arms race in terms of computer power at the moment and innovation such as this will be at the forefront.”

This sentiment was backed up by a presentation by Jude Scott, the chief executive of Cayman Finance, the body that develops and promotes the Cayman Islands’ financial services industry, who explained how Cayman Finance has formed a working group tasked with developing ways the benefits of fintech can be embraced by the industry by solving some of the challenges around regulation and transparency.

Scott explained the concept of the Fintech Innovation Lab to delegates and said that one idea being explored was the creation of globally certified digital ID, which could be used to validate the identity of investors wishing to participate in areas underpinned by technology such as blockchain.

“We have been forging ahead in the fintech space; we are looking to provide some unique solutions that will be tremendous globally,” Scott said.

“We believe it is important to understand the benefits of many types of fintech such as the fact it is borderless and low cost, but we also understand the problems of anonymity and lack of legislation. We are looking to solve some of those.”

Scott started by explaining that there are three things holding back the development and general acceptance of cryptocurrencies and the technology underpinning them.

The first is that regulators are struggling to understand how they can be monitored and tracked, especially when you consider that one of the original attractions of bitcoin was that it was designed to be anonymous.

The second factor is that governments have looked to put the brakes on things because of concerns they could lose the ability to use their own fiat currencies as an economic lever. But as governments accept the digitisation of their own currencies, this may change, Scott said.

Finally, the tax authorities have been unable to understand how they can effectively tax some of these fintech companies and understand their products.

Stressing this is his personal view only, Scott said that he believes that as fiat currencies become digital, the true cryptocurrencies will become a derivative asset class, and this will become their stronghold.

“We need to develop a new approach on regulation. The creation of a global certified digital ID with a single point of entry has the potential to solve a lot of these problems. It would allow investors to participate within a secure, closed system and work with regulators and the tax authorities to leverage the best of both worlds,” he concluded.  

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