A digital coin from China that takes its name from a character in The Matrix has become one of the world’s most valuable cryptocurrencies. And it’s done so by defying many of the principles that underpinned bitcoin’s meteoric rise.
NEO has surpassed $12 billion in market value, ranking 12th globally despite hailing from a country that’s banned digital coin issuances in one of the world’s harshest crackdowns on crypto-speculation. But founder Da Hongfei, 37, thinks Beijing is mostly done and he can focus on developing his underlying technology.
Da designed NEO to be a rival to ethereum: a decentralised ledger that lets companies issue tokens and set up smart contracts or programmes. For now however, NEO’s still controlled by a handful of people — mostly the co-founders and staff — who decide who they work with. That’s a long way from the libertarian ideal of bitcoin with its open network of thousands of miners. But Da says the plan is to move to a similar system as soon as 12 months from now.
“We want to be the place people go to when they want to do serious and reliable transactions,” Da said after an interview with Bloomberg Television on Thursday.
Da, a self-taught coder, founded NEO with a fellow Chinese programmer in 2014, before bitcoin captured the public’s imagination and ignited a frenzy of crypto offerings. Hundreds of coins have been launched since with little regulation and growing concerns about a bubble among investors including Warren Buffett. NEO was formerly known as Antshares, before taking on its current moniker to avoid confusion with Jack Ma’s Ant Financial.
Unlike bitcoin however, where anyone can become a miner, the NEO Council and coin holders decide who they work with. That’s why as of December, it had just seven nodes or computers verifying transactions and adding blocks to its network — a fraction of bitcoin’s.
“You can question the value of NEO,” said Zennon Kapron, managing director of Shanghai-based consulting firm Kapronasia and a former investor in the Chinese coin. “The risks in having a central control structure like that is whether the team is working in the best faith of the users of that platform.”
Da argues NEO’s selling point is faster decision-making. Having a centralised structure makes consensus easier to reach and can avert the kinds of conflicts that split the bitcoin camp. NEO’s own blockchain — or record ledger — now processes as many as 1,000 transactions per second, Da says. Bitcoin handles about 10 transactions per second, on a good day.
“For early projects that are adapting and changing fast, efficiency is very important,” said Da. “Right now it’s not a distributed system, but we plan to make it one someday.”
One question is whether Beijing’s policies might play a role in its longer-term development. NEO’s managed to sidestep much of the fallout from China’s crackdown on coin issues because it pre-dated those regulations, Da said.
“The regulation is already very strict. I don’t see more strict regulations coming,” Da told Bloomberg Television.
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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
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