Institutional Investor is proud to recognize leaders within the allocator community for their outstanding contributions to portfolio development at the second annual AlphaEdge Recognition Dinner. Prior to the event, we sat down with David Sheng, recognized in the category of Institutional Consultant of the Year.
As Managing Director at Aksia since 2018, David is an industry veteran, armed with 17 years of experience in alternative investments. Prior to his current role, which he assumed in May 2018, he was an allocator at Man FRM focused on hedge fund and credit strategies. Earlier in his career, David was a VP in the institutional sales and trading business at HSBC – and before that worked at Morgan Stanley, where he covered institutional clients across the hedge fund, asset management, and sovereign wealth fund universe.
He is a graduate of Princeton University, where he received a BA in Economics, and Columbia University, where he earned his MBA. In his current role at pan-alts consultant in New York, Aksia, which advises on $300 billion, he oversees alternative investment programs in the Americas, including portfolio management and construction, as well as manager evaluation – and leads alternatives coverage for Aksia's institutional Canadian clients.
The following has been edited for length and clarity.
What do you think is the biggest challenge facing the industry right now?
I think one of the biggest industry challenges is the rise of retail and personal wealth management and the evolving access to alternatives, and the subsequent impact on the institutional approach to investing in alts. It’s pervasive in the private markets: the melding of the bank system and private asset management is really important, and at the center is a lot of individuals. That’s important in how the investments are structured, and it’s important to the growth of technology. Aksia has a keen focus on risk transparency and risk monitoring, and I think this concept of democratization in finance is going to result in a profound shift to risk management.
I also think the age-old 60/40 model, long-term investing for retail and individuals is going to be brought into question because now there is going to be a lot more access to the alternative space, and the idea of creating unit access to private equity and venture capital is already happening; that’s going to create inefficiencies that institutions have to deal with, and it’s not just public institutions; it’s privates, too.
What are you most excited about for the next couple of years?
I would say private debt remains one of the biggest verticals of growth: There are some interesting sea changes in the debt world, coming off from the zero interest rates for so long, and there is a lot of bank disintermediation affecting the supply of capital.
I spend a lot of time with clients on asset-based finance and specialty finance strategies because there’s a diversification benefit. These are the areas that banks use to dominate, and tangible: hard asset leasing, credit cards, and consumer finance. Private debt is something I focus on (as well as my clients) and it’s ripe with innovation; historically debt is not something people got too excited about, but it’s the bedrock of our capitalist financial system.
Who are your mentors and what made you go into the job?
I actually started my undergrad career thinking I wanted to go into engineering because I really liked math; but when I was in undergrad, I realized I also really like social sciences. I took a couple courses with the late Daniel Kahneman on behavioral finance and Paul Krugman, who taught Econ 101 at Princeton, which was a fascinating mix of social sciences, contemporary issues and math.
My first job was in sales and trading in Asia at Lehman Brothers, where I learned about the global nature of trading. Morgan Stanley propelled my initial career in the hedge fund space, and ultimately equipped me to conduct research on hedge fund strategies on the buyside. My first boss when I transitioned to the allocator side, taught me how to ask questions, figure out how people invest, and how managers create trading opportunities, which is ultimately how I transitioned into the consulting business. I’ve developed a very long-term interest in understanding what makes people tick and think about making money. That’s what our business is, and it’s constantly changing, which is what makes it interesting.
If you weren’t in investment management, what would you be doing?
Investment management is a very long-term career. For me, it was a healthy transition from the day-to-day risk seeking nature of trading, especially flow trading of interest rates. But if I had the guts and the risk tolerance career wise, I probably would have gone into entrepreneurship.
I went to business school, and halfway through, I wanted to create online platforms for helping people develop their own AI avatar, to gather information about yourself and your own online personality. It was a concept I thought was quite interesting, creating an online version of yourself – but I had no idea how to execute on it or raise capital to build a team. I had aspirations to go into venture capital and entrepreneurship but decided to think longer-term and stick with investment management, and it’s been a good choice so far.
What’s one thing that would improve the way we do the industry?
I think education and knowledge is a big part of our business: It’s a big part of something I’d always held near and dear to me because both of my parents are professors, and I’ve thought of going back to university to get a PhD myself.
I stumbled into investment management, but having exposure to finance and portfolio management is something everyone should have access to prior to college, and I think that access and education go a long way to develop early-stage interest in the field.
Smart people who are inspired to pursue their goals but that also seek to inspire others will go a long way to create brilliant new minds and careers.
For more content of Investor Week, visit the group here.
To discuss the content of this article or gain access to like content, log in or request membership here.