The Rise of External Asset Managers (EAM) in Asia

A decade ago, External Asset Managers (EAMs) were virtually unknown in the Asia-Pacific (APAC) region, despite being well established in Europe and the U.S. Today, the sector is rapidly expanding, with Hong Kong and Singapore hosting 160 independent asset management firms that collectively manage US$91.5 billion in private wealth as of 2017.

Traditionally, investors in Hong Kong, Singapore, and the broader APAC region prioritized maximum control over their assets. Wealth management was dominated by banks, insurance companies, and a limited number of independent wealth advisors.

As Asian markets have matured and wealth has grown, a burgeoning client base of affluent young people is now open to different forms of wealth management. This has created demand for EAMs in emerging markets like China, Thailand, Indonesia, and the Philippines, as well as in established centers like Singapore and Hong Kong. Since 2015, more wealth has been held by high-net-worth (HNW) individuals in Asia-Pacific than in the U.S., and the HNW population is expected to increase by over increase by over 40% every year  over the next decade. In response, the number of EAMs is projected to grow—by 25% in Singapore and 50% in Hong Kong.

Governments in these countries are enacting stricter regulations in response to this increased wealth, adding costs and administrative burdens for investors. EAMs offer an attractive solution to help HNW individuals manage assets in this evolving environment.

What is EAM?

EAM involves a client opening an account with a custodian bank, often a private bank, and placing assets in the account. The client grants the EAM authority and power of attorney to manage the investment portfolio and asset allocation on their behalf.

The assets remain in the client’s name, but the EAM makes decisions on how they should be managed.

In Hong Kong, there are three main types of EAMs: family offices and multi-family offices, which are traditional models started by Ultra-High-Net-Worth (UHNW) teams. The third type is the EAM/multi-family office, which may be operated by a group of Relationship Managers (RMs) managing clients’ assets under management (AUM) or by a corporation specializing in areas like asset management, insurance brokerage, and private equity.

Specialist EAMs tailored to client interests

EAMs have developed specialized service offerings, including Asset Allocation, Investment Advisory, Family Governance, Estate and Tax Planning, Corporate Advisory, M&A, and Private Placement. EAMs are increasingly being used as external advisors for lasting settlements, such as successions, trusts, and foundations.

Benefits for clients and relationship managers

One key advantage of using an EAM is the assurance of independence. RMs are generally paid a fixed percentage management fee, incentivizing them to deliver consistent and solid results rather than earning commissions from additional products or moving portfolios between providers. RMs aren’t pressured to meet sales targets, generate revenue, or achieve other KPIs, helping ensure EAMs deliver a higher level of stability than traditional investment advisors.

EAMs also offer flexibility and highly personalized client service. They can suggest a wider range of diversification options than traditional banks, including alternative investments, lending solutions, and customized structured products. With full independence and an overview of different service providers across various custodian banks and asset management firms, EAMs can provide high-quality strategic advice on choosing between products and solutions, offering asset allocation advice that prioritizes the client’s interests.

The ability to navigate regulations is another important feature of external asset management. Compared to banks, EAMs face a reduced regulatory burden and lower compliance costs. The requirements for EAMs are less stringent, for example, in the onboarding of new clients and risk control measures.

EAMs manage assets under a power of attorney, with the assets remaining in the bank and, therefore, not at risk. Meanwhile, clients can achieve geographic diversification by booking their assets across multiple countries, such as Hong Kong, Singapore, Switzerland, and Dubai.

In addition to less stringent regulations, another benefit of EAMs for relationship managers is the typically non-bureaucratic culture, characterized by flat management structures and simplified reporting lines. EAMs also offer relief from the recent M&A activity in the private banking sector, which is expected to continue in the coming years.

Recent mergers include Julius Baer’s takeover of Merrill Lynch, DBS’ acquisition of Société Générale and ANZ’s wealth management and retail banking divisions, LGT’s purchase of ABN Amro’s Asian private banking unit, Coutts’ acquisition of UBP, and Barclays’ acquisition of the Bank of Singapore.

EAMs are always keen to attract private bankers but are now also looking beyond to investment bankers and corporate bankers with strong wealth networks in APAC, driven by rising demand for front-office staff.

The future of EAM business models

As with any booming sector, external asset management is likely to enter a period of consolidation following the initial expansion phase, as companies merge or wind down to achieve the critical AUM size of around $200 million, which is suggested as the requirement of certain custodian banks.

It’s also likely that we will see some partnerships between EAMs and banks, enabling EAMs to reach new customers and banks to achieve stronger growth. Partnerships could improve efficiency and deliver long-term, stable business relationships, while also helping to manage rising costs for both EAMs and banks due to regulatory pressures and compliance costs.