A growing number of external asset managers in Asia are coming to the realisation that if they can’t stand the heat, it’s time to get out of the kitchen. This may entail a choice between selling up – as some are apparently hoping to do, as AsianInvestor reported this week – or scaling up in terms of clients and resources.
EAMs – also known as IAMs (independent asset managers) – are generally set up to manage liquid portfolios of assets for affluent individuals or families. The successful ones tend to graduate beyond this into multi-family offices (MFOs), offering a wider range of services, from tax advice to wealth planning and structuring to sourcing private deals.
Of course, making that transition is easier said than done, and more likely to happen once a firm has gained the trust – and assets to manage – of at least a couple of families.
Philippe Legrand, chief executive of London & Capital Asia, a Hong Kong-based MFO, told AsianInvestor: “There are broadly two types of EAMs: those that set up with a limited number of people to handle existing clients, and those that launched with the aim of offering services to existing clients but also new clients by expanding the scope of their services to those of a multi-family office.
“The first will not necessary be scalable – but if you are not, then what do you do?” he said. “The thought process about expansion and the next step will be very different.”
One key point of difference between an EAM and an MFO could well be how they charge clients. While EAMs tend to levy fees based on a percentage of the assets they are managing, said Legrand, there are other benchmarks that MFOs will use.
He pointed to a firm in Shenzhen that advertises that it charges family clients a fixed fee between Rmb1 million ($148,000) and Rmb5 million, irrespective of AUM, depending on the services it is providing to the family.
“If we’re talking about direct investment opportunities, the fee may have nothing to do with a client’s current AUM,” noted Legrand. “Or it might be a retainer related to a service, such as succession planning or family governance.”
If an EAM’s revenues are solely based on a single stream of income, such as a percentage fee of assets under management, it will find it tough or will need a very big client or clients, he added.
One company to have successfully charted the course from EAM to MFO is HP Wealth Management. The Singapore-based firm, with more than $1 billion in AUM, started out as an EAM before attracting a family client and then several more over the past couple of years. It has broadened its offering, increasingly making co-investments, and this year hired a professional dedicated to private-market investments.
Meanwhile, some MFOs are fortunate enough to have secured substantial backing from the get-go.
Take Singapore’s Thirdrock, seeded in 2010 by two billionaire family clients to run some $500 million. It exceeded $1 billion in AUM some years ago and has been able to launch an FX-focused hedge strategy, buy into a corporate finance boutique set up a hedge fund seeding platform and, in 2015, start building a discretionary portfolio management offering.
Clearly there is no set path to success in this segment. “So many different business models are labelled under the term of EAM or MFO,” remarked Legrand, “but if you’ve seen one MFO, you certainly haven’t seen them all.”