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What's On Swiss EAMs' Menu Over Coming Years
23 November 2020
There is likely to be consolidation in Switzerland’s external asset manager arena in coming years as new rules kick in. Demand for help with outsourced services is also likely to rise, industry figures say. Outsourcing Interestingly, he said that he and his colleagues have not seen much evidence in Switzerland yet of EAMs specialising in Shariah-based investments, even though there are substantial numbers of wealthy Middle East clients in areas such as Geneva.
Based on end-June registrations with FINMA required by regulations, there are about 2,000 EAMs. Some business owners who founded firms in the 1980s and 90s will want to retire; rising costs will also engender partnerships, merger deals and more outsourcing of non-core functions, they said.
This news service is intensifying its coverage of the sector. In fact, it has become so important that WealthBriefing is holding its inaugural EAM awards event in Zurich on 4 March 2021. We have recently looked at views about the sector here.
Veterans of wealth management know that the “wave of consolidation” is one of the more tired clichés of this business. And if any consolidation goes on, it still starts from a high number, so the population of the EAM field will remain large.
“There has been talk for years of some kind of consolidation process and some mergers, and so on….I have not seen much of that happen so far. The number , the private bank for which financial intermediaries are an important segment.
“The financial intermediaries sector is a very interesting and an important market for us that we would like to develop further. It is about finding new business models to support our existing as well as potential clients. For example, we take on some of the administrative burdens so that EAMs can focus on developing their markets and serving their clients," Markus Werner, head of Intermediaries Business at LGT Bank AG, told WealthBriefing.
For the Swiss industry as a whole, there has been some consolidation and Werner does see modest growth in the overall size of the sector, since EAMs continue to attract former relationship managers from private banks and other institutions.
“There might be some modest growth,” he says. At LGT, the external asset management field which the bank is involved in is “still growing and developing nicely.”
"There is demand for regulatory education, for help around outsourcing of certain functions, e.g. handling of EU’s MiFID II rules, as well as the domestic Swiss rules FinSA/FinIA," Werner said. “Regulatory obligations are not easy to implement considering EAMs’ existing IT infrastructure.”
As already mentioned, etops’ Jedlicka said outsourcing requirements are bound to increase. Asked to flesh out what this meant, he said that handling data is the most pressing concern. Data collection, aggregation, manual bookings, along with risk management compliance tasks, were important sources of work.
“With some EAMs here….you have companies with one or two or three people….a lot of them never really thought about technology or outsourcing functions to outside companies,” he said. “They are asked by clients about digital access to their portfolios and have no real idea about it. So we are being asked to help.”
EAMs are certainly an important market for etops, he said. This firm was founded in 2010 and has 50 staff, and a total of 41 clients. Clients’ total AuM is SFr42 billion, of which SFr20 billion ($21.9 billion) falls into the alternative assets category. Besides EAMs, clients are single family offices, private banks, institutional investment firms which are based in Switzerland and Liechtenstein.
One driver of the sector’s health has been a number of niche business areas, such as those EAMs having their business licensed with the SEC and focusing on serving expat US citizens living in Switzerland, and those concentrating on sustainable/ESG areas of investing.
Jedlicka said that in the case of sustainability-focused EAMs, their business model is “all about the data”, which in turn drives technology requirements. “We are already working with such a company in Zurich.”
Jedlicka said there is a need for local Swiss service providers to do a better job of understanding what SFOs require.
An important message to get across is making smaller institutions of all kinds understand the need to pay for consultancy advice. “The smaller the companies are, the more that consultancy is necessary but they are also less willing to pay for it!”
LGT’s Werner says that he has certainly seen a level of EAM specialisation. This trend had already begun some years ago: “EAMs tend to focus their offering and concentrate on core markets where they have dedicated knowledge on how to serve clients."
There is a pattern of some EAMs being interested in areas such as ESG investing. “I think that will continue to accelerate in the coming years,” he added.
There is likely to be consolidation in Switzerland’s external asset manager arena in coming years as new rules kick in. Demand for help with outsourced services is also likely to rise, industry figures say.
Interestingly, he said that he and his colleagues have not seen much evidence in Switzerland yet of EAMs specialising in Shariah-based investments, even though there are substantial numbers of wealthy Middle East clients in areas such as Geneva.