Why Consolidation is Such a Big Deal for IAMs
Cost is always the biggest concern for independent or external asset managers (“EAM”). It’s no longer a job but a business. As with all businesses there are start-up and on-going expenses involved. The overheads of running an independent setup are never cheap. One solution to keep cost low is to join a platform or joint venture with an existing external asset manager. Other solutions are the outsourcing of functions or relying on a more seamless technological approach.
Serving customers and getting licensed as an IAM requires many considerations around cost. Like all other businesses, a multitude of cost impairs the growth of start-up businesses. An external asset manager is no exception. Expenses like salaries, rent, tax, regulatory compliance, and execution facilities all become critical to the sustainability of the business.
For many EAM start-ups, the oversight of the costs becomes apparent within the first three months of the business. Unable to grapple with the cost, many EAM start-ups are forced to shut down. There are however known alternatives to dealing with costs. Take into consideration a consolidation, partnership or joint venture of IAMs for example where cost centres are spread out across partners and business activities.
In a recent routable held by CityWire EAMs mentioned that the considerations around successful consolidations depends largely on AUM. Estimates to successfully run a business hover around a minimum of SGD 1 billion. Just having a good track record as a relationship or investment manager is no longer sufficient to keep the business going or a good justification around a lower share ratio of costs.
Meanwhile, EAMs have been seen using the cutting-edge technology to identify leads and create high conversion wealth customers, such as using digital marketing and online cookies as an alternative to spending resources on business development by the relationship managers alone.
If you have considerations about consolidations and alternatives to starting-up, meet with a consultant to carefully assess your business ideas and plan a cost efficient route forward.