2023 Knowledge Brokers

David Sheng

David Sheng is a managing director on Aksia’s portfolio advisory team and has more than 17 years of experience in alternative investments. He is responsible for advising on the alternative investment programs for a range of Aksia’s clients including corporate and public pension funds, across portfolio management and construction, as well as manager evaluation. Sheng also leads alternatives coverage for Aksia’s institutional Canadian clients.

Before joining Aksia, in 2018, Sheng was a senior manager research analyst at Man FRM focused on sourcing and evaluating alternatives strategies, as well as active portfolio management. Prior to Man FRM, he was a vice president within the institutional sales and trading business at HSBC, and before that he worked at Morgan Stanley, where he covered institutional clients across the hedge fund, asset management and sovereign wealth fund universe, with a focus on fixed income and foreign exchange.

Sheng graduated from Princeton University with a B.A. in economics and holds an MBA from Columbia University.

CIO: What changes are you making to your asset allocation advice given the current state of monetary policy in a post-COVID, deglobalizing world and considering the impact of inflation and rising interest rates?

Sheng: Aksia’s focus is on alternatives, and at the forefront of asset allocation decisions for alternatives investors is the immediate and longer-term impact from the denominator effect. Rising interest rates have impacted both valuation gaps in public vs. private markets, one of the primary catalysts for the denominator effect, and have also resulted in higher return expectations for alternatives strategies—from hedge funds with high unencumbered cash and relative-value strategies benefiting from more dispersion, to private credit lenders that are able to pass through higher interest to borrowers and exert control in term documentation.

All of this has resulted in an attractive capital deployment cycle for active managers, and we have advocated for clients to stay the course on their private portfolios and to selectively increase their allocations in areas where the supply-demand imbalances of capital are particularly acute—for example, early stage venture capital, to capitalize on AI and technology innovations; real estate and asset-based lending where bank retrenchment continues to intensify; and emerging hedge fund spinouts, as the multi-strategy growth trend has created more competition for talent and capital.

CIO: What (actionable thing) have you learned over the course of your career that has proven itself this year?

Sheng: Empathy is critical in effectively working with teams and clients, and that has become particularly evident in a post-pandemic world where effective relationship building has been challenged not only by changing business conditions, but also by idiosyncratic human experiences that drive individual motivation. Making it a priority to understand the circumstances around decisionmaking for organizations and individuals is an interesting and revealing aspect of serving as a consultant and adviser. Developing tools and an organizational system to stay connected and relevant in an increasingly disparate workplace environment is nontrivial but can be rewarding in being able to better connect the dots and add value for clients and with colleagues.

CIO: What do you think will be the biggest innovation in your industry in the next 10 years?

Sheng: I think the democratization of finance, and in particular private investing, is simultaneously one of the greatest opportunities and biggest risks for the investment industry. Evergreen funds, business-development companies and rated notes are becoming commonplace as private investing structures amid the demand from retail investors for liquidity and transparency. Another direct consequence is the demand for data and technology in sourcing to make better-informed investment decisions. Our firm is already working on developing custom AI tools to interpret risk reports and financial statements to assist in the underwriting of private funds. The financial job innovation spectrum is also wide—a former colleague I caught up with recently, who in the pre-global financial crisis era, was at the cutting edge of financial engineering as a securitized credit trader, now is launching a blockchain-enabled tokenization process for investing in carbon credits to scratch the innovation itch.

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