The challenges of costs, technology and talent are driving a shakeout among private banks in Asia. Additionally, a study released in April by the CFA Institute highlighted that client trust in the industry is a major issue: Only 10% of investors in Singapore believe their investment firm always puts their interest first.
It seems like a tough time to grow a wealth management firm, but Lee believes Covenant has taken steps to address the broader issues.
The firm, founded in 2016, has a “a significant pool” of high net worth and family office clients in Singapore, Malaysia, Indonesia and Thailand, he said. Minimum investible assets are S$3m ($2.2m), which he said is in line with private bank minimums.
At least 90% of the business is discretionary, according to Lee. The firm uses a fee-based model, which is based solely on the performance of client portfolios.
“In any transaction that the client makes with the banks, a percentage is paid back to [the the asset manager], but we give this back to the client. The amount we get paid depends on how much the portfolios are worth,” said Lee, formerly a senior portfolio manager at Swaen Capital and before that a private banker at DBS, advising professional investors and families.
In addition, the founding team of five each holds a stake in the firm, which he believes helps align the interests of the firm and clients.
Fund selection for clients is done through several avenues, he said.
“When we are looking for fund solutions for clients, we seek out what is available in the private banks but also go through other service providers as well. We also run our proprietary quantitative screens and contact fund managers directly.”
Generational change
Even though in Asia the amount of wealth managed independently is still very low (between 5% and 6% in Singapore, he estimates), things can change, he said. “There is a lot of work to be done by independent firms in Asia as the second generation takes over.
“The first generation is less inclined to let somebody else manage the wealth they have amassed. As the first generation retires, the propensity to engage somebody else to manage the wealth increases,” he added.
Management wants to grow the current team of 13 and a few investment professionals are joining this year. “We have a senior bond portfolio manager joining us,” Lee said. “The growth will be in that direction.
“Talent recruitment is indeed competitive, but we believe that there are prospects outside who will identify with our approach.
“Our investment professionals’ compensation are pegged to the value of our clients’ portfolios. This incentivises the professional to do the thing that is in the best interests for our clients.
“The bottom line compensation to the investment professionals are definitely competitive to the top banks.”
Costs for wealth managers are certainly rising, he said. “We recognise size and scale is important in overcoming these costs. Hence, we are adopting a two-pronged strategy by increasing headcount and investing in technology.
“It’s critical that we invest in technology to address both the compliance and risk control issues as well as the efficiency issues.”
