The nascent independent asset manager (IAM) industry in Hong Kong and Singapore is set to double to $56 billion by 2020, and its share of wealthy clients’ assets will expand in turn, according to new research from Swiss private bank Julius Baer.
In addition, the average size of each IAM is tipped to grow by 43% in Hong Kong to $430 million from $300 million and by 60% in Singapore to $400 million from $250 million.
Julius Baer includes external asset managers and multi-family offices within the definition of IAM, but not single-family offices or traditional fund houses. It describes them as “run by experienced practitioners, independent from any bank or product provider, in delivering investment advisory and wealth management services to high-net-worth individuals”.
The bank estimates there are 40 IAMs in Hong Kong and 60 in Singapore, with the total number set to rise to at least 130 by 2020. In the former city they account for around 2.5% ($12 billion) of the overall wealth management market and in the latter 4% ($15 billion). That compares to IAMs overseeing $420 billion in AUM in Switzerland (and 15% of the WM market there).
But Julius Baer predicts the industry in Asia will move closer to double digits in terms of share of AUM over the next five years. This growth will be underpinned by the rapid buildup of wealth in the region, with the bank predicting a high-net-worth population of 130,000 with assets of $1.3 trillion by 2015.
“The formidable increase in wealth in Asia in recent years has first accrued to mainline wealth management firms such as private banks, and less so independent asset managers,” said the report. “This is because these financial entrepreneurs [running the IAMs] typically do not have, or even seek to have, the marketing and branding strategies that are needed to attract clients that have made recent wealth.”
The next wave of IAM clients in Hong Kong and Singapore will largely come from within the region, noted the report, but there is a substantial client base based outside Asia. For example, 55% of the clients of Hong Kong IAMs are Hong Kong-based, while 45% are worldwide. And 60% of Singapore IAM clients are based in Asia, while 40% are outside the region.
“This reflects the attraction of both Singapore and Hong Kong for international investors outside the region looking for local access to Asian investments as well as geographical diversification of their wealth in politically stable financial centres,” said the report.
As for services provided, the share of discretionary mandates managed by IAMs is reportedly higher in Singapore (75% discretionary versus 25% advisory) than in Hong Kong (50/50 advisory-to-discretionary). A typical asset allocation is 50% equity, 40% fixed income, 5% cash and 5% alternatives.
Meanwhile, Julius Baer expects IAMs will eventually emerge in Asian locations other than Singapore and Hong Kong. However, such developments tend to be preceded by a mature local private banking industry, which is not apparent outside the two cities mentioned.
But if that were to happen, IAMs are likely to be set up in other Asian cities, potentially “fertilised” by family offices already set up in Hong Kong or Singapore, said David Reymond, Asia-Pacific head of IAMs and custody at Julius Baer.
Latin America is a good example of where this has taken place already, noted Yves Robert-Charrue, Zurich-based global head head of IAMs and global custody at Julius Baer. “There are IAMs in Chile and Mexico, and a particularly thriving industry in Brazil, with experienced, regulated asset managers onshore, which you didn’t have 10 years ago.”
Moreover, families from Europe – both west and east – are showing growing interest in coming to Asia with a view to diversifying their portfolios and their booking centres, Robert-Charrue told AsianInvestor.
Those most likely to set up are those with existing operations or family members in Asia already, and/or with an affinity to doing business internationally, he added. A very local family is not likely to reach out that far; it tends to be single-family entities that set up in the region, he said.
Many of these families can easily run plain-vanilla investments, such as large-cap global equities, out of Europe, noted Reymond. But when it comes to private equity and debt, for example, they need local expertise – the question is whether they want to set up their own office, or select an asset manager with strong expertise in a particular area to help them.