130
Legal Disclaimer:This article is published as a general overview and, it is not intended to – and should not – be relied upon as legal advice.
This article is not an advertisement making an offer or calling attention to an offer or intended offer.
In response to the digital securities and tokenization adoption movement, we will be presenting a comprehensive series of interviews, focusing on the success stories of companies that have launched digital securities or asset tokenization. We will delve into the reasons why they chose this method of raising funds and how it helped them in achieving their goals. Their stories of success will help in the understanding of the process of tokenization, and hopefully this will encourage more interested parties to follow suit.
Last week, I managed to catch up with Edison Chen, the Founder of Eternal Glade Investment and a top ranked analyst who manages the discretionary fund that was tokenized in March and now trading on the iSTOX Exchange. Accordingly, the fund has risen over 11% in value over the second quarter, despite the intense market pressure of the pandemic.
What inspires you to start the hedge fund?
Edison: I always like to analyse stocks, and in my previous working experience, I was a Sell-Side Analyst as well as Institutional Sales. I’ve been particularly keen in spotting for trading and investment ideas. In the past, I shared all these ideas with my clients and friends.
As the saying goes, it’s better to put your money where your mouth is. I felt that it’s time for me to be my own boss, gathering monies and investing them myself. I wanted to be the one that makes the call for decision and subsequently live with the consequences, whether good or bad. It’s also my journey of self-actualisation, as I believed that I would get a much greater return through my own abilities and skills.
Why did your company choose to raise funds through tokenization?
Edison: Being in the fund business, my investment philosophy has always been based on value investing. The most important thing of being a value investor is that my strategy stems from a long term value investing approach, focussing on value stocks amid the current volatile market.
If you look at a lot of funds out there, they are mostly open-ended with high fee structures. When the market is bad, people tend to redeem the funds, and therefore it is a double whammy for the funds and for the rest of the shareholders.
What I like about tokenisation of fund is that I was able to launch a closed-ended fund and at the same time, listed the fund over the platform where it can be traded publicly. This is very important to me because by doing so whoever wants to redeem the fund, can do it in open market without the risk of jeopardising the fund.
In addition, being a small scale fund, I feel that tokenization is the most cost efficient and cost competitive way to go about.
Why did you choose to launch the tokenization of your fund in March, amid the COVID-19 pandemic?
Edison: You can’t find a better time to do value investing, be greedy when others are fearful. I’m using tokenization as a cost competitive method to achieve my goals.
To many, tokenization is perceived as something that is related to bitcoins and therefore highly risky. However, value investing in my hedge fund is not exactly that high of a risk. While I can’t say that it’s low risk, I am not about pursuing high returns either. Whether or not an investment is worth buying clearly depends on how much risk was involved in generating those returns.
Cryptocurrency is without any real asset backing and its current value has been driven primarily by speculative interest. In contrast, Eternal Glade is an asset-backed fund, which is managed by someone who is good at doing value investing and stock picking. From that perspective, tokenization is just a way to get the fund ‘listed’ in a cost effective manner that benefits all shareholders.
Despite a volatile environment, many still want to make money through trading with repeated entries and exits. Being a close-ended fund, one cannot issue and redeem shares at any time. Therefore I wanted to ensure the fund is tradable so that investors can still trade in and out during this volatile period.
Which markets are your fund focussing on?
Edison: Currently, our fund focuses on both Singapore and Hong Kong markets. We would be expanding to other markets such as Malaysia, Vietnam or Indonesia when the pandemic is better controlled so that we can perform proper due diligence.
How much was raised during the tokenization and how were the investors’ interest?
Edison: In excess of SGD 10 million. Well to be honest, it was not as good as what we’d expected as we’d planned to raise even more. But given the on going pandemic crisis, I believe that it’s still a commendable performance.
How long was the turnaround time in launching a tokenized fund from start to finish and what were the stages?
Edison: I would say that it’s pretty fast. I casually shared the idea with iSTOX in early January, followed by the official tokenisation process, which started in end January, and before I knew it, the fund was tokenized in March. Despite the pandemic, we are talking about two months or less.
I first engaged my lawyer from Shook Lin & Bok, who’s familiar with asset tokenization to establish the corporate domicile and ensuring the overall investment mandates to meet the listing requirements of iSTOX. When that’s done, I worked closely with their compliance department to go through all the stringent KYC process and answering questions pertaining to the purpose of listing the fund. At the same time, marketing outreach campaign to accredited investors was performed.
What were the biggest challenges you had to overcome during the tokenization process and would you recommend other companies to raise funds through tokenization?
Edison: Thanks to iSTOX, the experience was a very enjoyable one. I pretty much felt at ease and didn’t face any major challenges during the process. I guess my biggest obstacle then was how to invest the money so as to ensure better returns to investors.
This whole experience has enhanced my confidence and appreciation in tokenization of assets. It is a new way to manage and record the ownership of assets, and it is cost efficient and cost competitive unlike traditional channels.
In addition, investors have to understand that tokenization is not just about Bitcoin, which is a risky asset. They have to keep an open mind, and always remember to find out what’s the fund’s underlying assets before investing.
From my experience, I definitely would recommend companies with strong track records to consider this form of private placement.
Moving forward, are you going to tokenize more funds?
Edison: For sure. Unfortunately, market is not very good at the moment, but when market returns coupled with the fund continues to perform well, we will definitely expand our funds and raise money again so that we can benefit more shareholders who had previously missed out on this opportunity.
What do you feel is the biggest strength of your company right now?
Edison: Going through the entire process has enabled my company to be in a good position. We have a very cost competitive structure and only charge a small management fee. This is only made possible because we’d raised money through tokenization.
Now that the fund is listed in iSTOX, investors are aware and appreciate that they can sell their shares, anytime as they please through the platform. I am confident that it will open a lot of doors for potential investors when market returns.
Is it true that liquidity is achieved through tokenization?
Edison: Firstly, it depends on how big the fund size is and secondly, the market condition.
While some may say that there are not enough investors to ensure 100% liquidity, tokenization allows you the opportunity to sell through a platform. I always believe that whether your shares will sell or not, really depends on the right price. If you give enough discount for instance, I’m sure that there are people who will be interested to buy from you. It also means that it is definitely better than to redeem the funds directly as it is very costly to sell the investment, especially when the market is really bad.
by Ian Fong, Director of Marketing & PR, Propine
