Much has been said about private bankers in Asia who have thrown caution to the wind and headed off into the sunset of independence. However, investment chiefs with ambitions to set up independent asset managers or multi-family offices are harder to come by.
The reason is pretty intuitive: relationship managers have the client assets, so they bring in the revenue. An investment professional is typically a cost centre, growing these assets through performance.
Kerry Goh, a former Asia head of discretionary portfolio management at Julius Baer, is an atypical example of investment-chief-turned-CEO within the wealth management industry. He was lucky enough to have client assets from day one. Goh launched Kamet Capital – a single family office with ambitions to go multi office – in August 2017 and hasn’t looked back since.
‘I had a good first entrepreneurial experience in London, where I helped set up a hedge fund and later cashed out. I wanted to do something similar. I was 45 and realised that if I wanted to build something, it would have to be now or never,’ the CEO and CIO said.
‘Secondly, I saw the need for this particular industry because I see the needs are not being met [by the existing institutions],’ he added.
Wealthy families in Asia are increasingly seeking formal family office structures as the first generation moves to segregate family and business assets. It’s all part of an effort to ensure a smooth transition to the next generation.
According to UBS estimates, $2.4 trillion in billionaire wealth globally is expected to change hands over the next 20 years. The clients behind a significant chunk of this wealth are now looking for truly independent advice on investments, Goh said.
Conflicts of interest
True independent asset managers and family offices have an open architecture platform and charge a fee for discretionary mandates and a percentage of assets under management for advisory portfolios, avoiding any payment from product providers.
Several industry insiders have pointed to the inherent conflicts of interest between private banks and their clients when it comes to referral fees, rebates and retrocessions. When the private bank receives a fee for recommending a certain product or insurance provider, it can – and has – led to incidents of misselling and mischarging.
What’s more, private banks in Asia rely heavily on transaction-based revenues, creating perverse incentives for relationship managers to move in and out of investments, leading to product churn.
Until recently, such incentives and structures were mostly hidden from clients. However, over the past two years, regulators in Hong Kong and Singapore have made a strong push in favour of investment suitability and disclosure of fees and costs.
As a result, today, equity dealings are mostly explicit, with mutual funds making their way up the transparency scale. However, parts of the fixed income universe, forex and structured products still have hidden elements.
Michael Foo, CIO and partner at Singapore-based independent asset manager HP Wealth Management, said that these conflicts of interest came to a head during the 2008 global financial crisis, fuelling his decision to explore the independent wealth management space.
‘The most glaring one was that the private bank manages both sides of the client’s balance sheet: the assets and the liabilities,’ said Foo, the former regional head of portfolio management and research at Clariden Leu.
‘In bull markets, it’s pretty much a win-win for all parties involved, but in a crisis, obviously, the banks will protect their own balance sheets and sometimes, it’ll come at the expense of the client’s own balance sheet,’ he said.
Foo added that when he helped set up HP in 2009 with former Clariden Leu banker Urs Brutsch, the portfolio construction process for advisory clients at private banks was not structured. Today, however, things are changing as more clients opt for advisory mandates.
Meanwhile, Goh noted that an independent setup also gives greater control over asset allocation and house views that are not dictated by global headquarters located outside Asia, therefore allowing for a home bias.
Less is more
Without a doubt, international private banks bring with them enormous resources, a diverse product platform and highly specialised manpower, but the perks weren’t enough to stop Goh and Foo from going solo.
‘In a leaner organisation, where you have to cover everything, you get stretched,’ Foo said. ‘The flip side is that you get your hands into everything, so you have more control of the outcome.’
There’s also often more time to focus on investments. ‘A typical private bank CIO runs a large team, attends endless senior management meetings, travels around the world to do marketing and on top of that decides how to invest. Can you really do that?’ Goh wondered.
He is also enjoying his new job description, which extends far beyond investment decisions to inheritance, philanthropy and concierge services.
‘A rare request – the principal called and asked if someone can harvest the fruits in his garden and distribute it to the neighbours because he was out of town,’ Goh recalls. ‘We did it!’
This article was published in the May issue of the Citywire Private Wealth magazine.