Hardly known for its opulence, the world’s largest continent is about to start giving the so-called wealth capitals of Europe and the U.S. a run for their money in an area you would least expect—independent asset management. Bolstered by secular tailwinds such as rapid advances in technology, healthy financial markets and favorable demographic changes, the business of creating wealth is enjoying unprecedented success across the globe.
Total global wealth clocked in at a record $317 trillion last year with per capita global wealth hitting $63,000 thus making the current crop of human beings richer than all its ancestors.
However, nowhere on the planet is wealth accumulating faster than in Asia. It’s boom time again for the continent of 4.5 billion souls, and Asia’s asset management is in hyper-growth mode.
Asset management in Asia expanded at a brisk 9 percent per year over the past decade with a revenue pool expected to grow in double-digits to twice its current size over the next five years.
Asia’s boutique wealth managers
Hidden among this Asian bounty is another curious trend—a rapidly growing class of boutique wealth managers more commonly associated with more affluent nations. The so-called external asset managers (EAMs) mainly tap smaller business owners and executives who are frequently beyond the reach of private banks.
EAMs work independent of traditional banks and offer a wide range of financial services to wealthy individuals including trading, cash management, estate planning, tax consultation and inheritance management among other services. They are also free to offer bespoke independent advisory services—something that Asia’s wealthy class is finding increasingly attractive.
Further, independent wealth managers are reputed to operate a more transparent model than traditional financial institutions since they charge a straight fee based on a client’s assets.
These boutique wealth management firms are relatively common in wealth centers such as London and Switzerland with the pair boasting over 2,000 such outfits. Asia still has less than a tenth that tally, with the majority concentrated in the continent’s tiger economies. Hong Kong and Singapore are home to 160 independent asset management firms that collectively managed $91.5 billion in private wealth as of 2017. That’s quite an achievement considering that EAMs were virtually unheard of on the continent barely a decade ago.
Banks love them, too. EAM accounts are relatively low-maintenance for private banks, meaning they do not have to spend a ton on incentives for in-house EAM managers to generate business. Indeed, U.S. investment banks are increasingly preferring to work with Asian EAMs as they look to tap into the market.
One such bank is Credit Suisse, which provides services to more than 1,000 EAMs globally. The bank says it has sharpened its focus on APAC (Asia Pacific) EAMs instead of satellite offices in Europe. Other banks that work with these firms include UBS and Julius Baer.
Former BNP Paribas and Standard Chartered private banker Chi Man Kwan is one such beneficiary of this trend, according to Reuters. The Hong Kong-based asset manager set up shop three years ago and got his feet wet managing his parents’ money. Kwan's Raffles Family Office now boasts assets under management (AUM) totaling $2 billion, more than 70 clients and 35 staff. Kwan believes the industry has plenty of room for growth, noting that the industry’s still the tip of an iceberg when benchmarked against the sheer amount of wealth being created on the continent.
Good times to keep rolling
The good times are set to keep rolling for Asia’s private wealth managers.
Independent wealth managers now manage ~6 percent of Asia’s total wealth management assets, a figure set to double over the next 3-4 years. The rise of affluent young people who tend to be more open to different forms of wealth creation and management is expected to continue driving this trend.
However, as with any booming sector, Asia’s external asset management industry is expected to soon enter a period of consolidation after an initial phase of rapid expansion. Notably, smaller companies are expected to either wind down or merge in order to attain a critical size of around $200m AUM, which is currently suggested as the threshold for certain custodian banks.
By Alex Kimani for conil.me