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EXCLUSIVE: The Nascent External Asset Manager Market In Asia - What's The Potential?

Tom Burroughes, Group Editor , 2 June 2016

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A report by the publisher of this news service drills deep into the external asset manager market in Singapore and Hong Kong. This feature sets the scene by asking what is at stake.

This publication has partnered with UBS to research the external asset manager (EAM) sector in Asia, and is launching an extensive report on its development in both the main hubs of Singapore and Hong Kong, and the diverse markets surrounding these north- and southeastern powerhouses.

In this feature, prominent EAM players in Asia outline how the ecosystem enabling these businesses is evolving in the region – and why this nascent model could be about to really take hold.

External asset managers may be relatively new kids on the block in Hong Kong, Singapore and other parts of the Asia-Pacific region but the ascent of a younger, affluent client base and rising costs for traditional service providers should bode well for EAMs in the years ahead.

This appears to be the impression judging by what is now quite a busy area in Hong Kong and Singapore, with firms such as Thirdrock, Abacus Capital, Swiss-Asia Financial Services and Taurus Family Office, among others, operating in this space. 

For some time, wealth management markets in Hong Kong and Asia were dominated by banks, insurers, relatively few independent advisors, and a handful of large financial institutions providing asset management in-house. The idea of external managers able to play to a more “open architecture” approach was not all that prevalent, and certainly not equal to what was on offer in, say, the UK or North America. However, the maturation of the Asian market, which has seen new regulations and their associated costs rise, as well as greater pressure for performance, puts EAMs in a healthy position to break through. 

“While the EAM concept is still fairly new in Asia, compared with more developed markets like the US and Europe, there is growing awareness and understanding – among both private bankers and clients – of the benefits an EAM offers, be it transparent, objective advice, a true alignment of interest, an open-architecture platform which gives clients products that best suit their needs, the holistic solution-driven approach to investment management or bespoke level of service,” Jason Lai, founder and chief executive, Thirdrock Group, told this publication recently. 

“Another factor would be the transition of wealth to younger generations. With the generational shifts taking place and an increasing need for succession planning, we’re observing a marked change in the openness towards outsourcing some of their portfolio management and an increasing appetite for discretionary services, ranging from real estate and private equity to hedge funds,” Lai continued.

Lai argued that his firm and others are in a good place to capture growth. “The growth in interest in EAMs is also in part driven by the challenges private banks have faced in recent years – tougher marker conditions, increasing global competitiveness, which has put a squeeze on operating margins, and rising business costs on the back of higher levels of regulatory compliance, more complex client needs, among others – resulting in a string of consolidations. The fluid private banking landscape has led clients to consider the value and proposition of EAMs more closely,” he said.

Taurus Wealth Advisors, a Singapore-based external asset manager, said the industry is in early days but has big potential. “The EAM business is still a tiny part of the private banking industry currently. Firstly, this is because wealth is first-generation controlled and hence delegation of investment authority does not come easily to the patriarchs. Secondly, there is no benchmark for fees being charged for advice and it is a fairly foreign concept to high net worth individuals in Asia. Having said this, growth on the current low base of the business will be sharp. Growth to a point where EAMs will become a significant part of the industry like in Switzerland will take many years,” said Mandeep Nalwa, Taurus’s chief executive.

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