Digital Capitalism -

when evolution becomes revolution

- Jenher Jeng

(Excerpted from “Deliberations on Building Taiwan as a Financial Center via Futures Trust Funds with Financial Engineering”, G5 Capital Management/K & L Gates, Securities and Futures Monthly, Volume 25, Issue 11.)

Breakthroughs in internet technology have facilitated the construction of a global internet trading network and platform. Together with the help of innovations in financial engineering supported by high performance computing, trades linking assets of different types across markets can now be executed instantaneously, thus enabling global capital to flow rapidly between different regions and different assets. This advanced global capital market structure has spurred the booming hedge funds and other alternative investment, and the new paradigm of “absolute returns” hedge funds pursue has in turn revolutionized the structure of the global capital market. We may regard this revolution of global capital market structure as the formation of “Digital Capitalism”. This paradigm shift in asset management can be saliently observed in the phenomenon of changing “equity-bond correlation”. The conventional wisdom of “equity/bond balanced” investment strategy is now under challenge. Instead, a new, well-rounded strategy is formed based on the “five major capital markets”: equity, bond, currency, commodity, and real estate. Taking all aspects into consideration, this new line of thinking reflects and responds to the “five principal risk factors”, including psychological, economic, strategic, geopolitical and natural factors, in order to adjust the portfolio strategy dynamically. Defined as “Global Dynamic Asset Allocation”, it has proved to be an all-around asset management structure for the new financial era.

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