EAMs : THE ALTERNATIVE INVESTMENT SOLUTION
Before the global financial crisis in 2008, external asset managers (EAMs) were virtually unheard of in Singapore, despite being well established in Europe.
With the growth in wealth in Asia and the decrease in trust from the big banks due to the financial crisis, the ultra-high-net-worth (UHNW) clients realised that they needed someone:-
- whom they could trust;
- who understood the bank;
- who would protect their interests;
- who would work with no conflict of interests; and
- who is independent and transparent in their dealings.
Given the demand of these UHNW clients who need alternative solutions in managing their monies, EAMs quickly came into the picture and eventually became ubiquitous.
Who are EAMs, and What do They do?
EAMs are usually small and tight-knit organisations staffed by experienced ex-private bankers (with a long tenure and proven track record) who generally moved because they were tired of pushing non-sustainable products to their clients or were looking for a better work-life balance. EAMs operate differently from private banks; they tend to be leaner and more agile and are more competitive on pricing.
People might be hesitant to entrust their assets to an EAM because they are concerned about safeguarding their assets. They are worried about whether their assets will be safe in an emergency. The most significant advantage of an EAM is that the EAMs do not and cannot hold assets in custody like a bank. As such, the clients do not have to deal with the hassle of moving their assets from their current bank and are assured that their assets stay safe and all asset management is handled by the EAM exclusively.
EAMs are not employed by banks but employed by their clients. They are independent of the bank and are not pressured to meet product sales targets. They offer flexibility and personalised client services. They are not pressured to meet targets for selling “the bank’s products”. Instead, they can provide products and services from a wide range of service providers and propose a more flexible investment plan that fits their clients’ portfolios.
EAMs provide more than just investment advice; they provide bespoke services based on their client’s profiles and demographics. UHNW clients are looking for more than investment advice; they want to be treated as individuals with unique needs and demands. Many EAMs also offer tax consultations, legacy planning and real estate planning.
While the EAMs can pivot faster to changing market conditions than the private banks, they are not a substitute for the private banks. Instead, the EAMs act as a type of intermediary between the wealth holder and investment avenues. Since they rely on the banks’ expertise and resources to act as custodians, the relationship between the EAMs and the private banks is more collaborative than competitive.
The key to Singapore’s placement as one of the leading global financial hubs is the robust regulatory framework for the financial services industry. The regulatory framework in Singapore is designed to protect investors and consumers and consists of three main pillars: (1) a robust legal framework, (2) solid regulatory institutions, and (3) an effective enforcement regime. As such, while the EAMs do not have to comply with stringent regulations like the banks, they are also subject to similar ever-changing laws.
In 2009, there were around 80 asset managers in Singapore with assets under management of S$864 billion.
In 2015, the Monetary Authority of Singapore (MAS) reported 625 registered & licensed assets managers in Singapore, collectively managing around S$2.6 trillion.
Despite the COVID-19 pandemic, in 2022, the number of registered & licensed asset managers in Singapore grew to 1,313, and the assets under management (AUM) grew to S$4.7 trillion.
The financial crisis has opened the door to a whole new era of specialists who are knowledgeable and experienced in their field. Now individuals and organisations can fully believe in the flourishing external management sphere. The growth does not end here. We should expect at least another decade of expansion for the external management sphere.
Setting up an EAM can be a daunting task. We offer video consultation via Lawyer Anywhere so that you can get the help you need. We can walk you through the process and answer any questions you may have. Contact us today to get started.