In Geneva, Independent Asset Managers (IAMs) are confident there will be a market for them for a long time to come. Hani Kalouti, Director of HBK Investments Advisory, LF Finance, an asset management arm of a Lebanese financial group, or the big Aberdeen Asset Management are all good examples of how IAMs can thrive in a fast-changing industry that seems to be kept under constant political pressure. Hani Kalouti, a former Citibank director, has been operating for nearly 20 years out of his Geneva office a few steps away from the city’s largest banks. LF Finance is the product of an executive decision by the Banque Libano-Française to offer a fully personalized experience to its wealthiest clients. Both of them are located perfectly to maintain close relations with the private banks who provide them with the much needed investment platforms and research.
From the 1990s up to the 2008 financial crisis, IAMs focused on catering to smaller accounts than their big-bank competitors. This made a lot of sense as private banks and the big asset management arms of market-leading banks concentrated almost exclusively on the big fish.
But the financial crisis dealt a big blow to many private banks who have since lost the trust of many high net-worth individuals and are under scrutiny by the tax authorities of many countries. Thus, wealthier clients started approaching IAMs for advice free from the big corporations’ blanket sales strategies and revenue targets. The fact of the matter is they have little choice if they wish to receive the “boutique” style service private banking has been historically known for.
According to the Swiss Banking Association, an estimated 600 billion Swiss francs, representing about 11 percent of all assets under management in Switzerland, was managed by IAMs in 2011.
As explained by the Swiss Association of Asset Managers, which oversees and federates IAMs in Switzerland, although independent asset managers such as Hani Kalouti are facing challenges because of new regulations, the disappearance of banking secrecy and lingering difficulties in the Euro-zone, the number of bankers who opt for a private business, rather than to remain within the ranks of a bank, continues to grow.
However, independent asset managers stand to lose a lot more than big banks when exposed to reputational or regulatory risks. This is a well-known fact and they are extremely thorough with their due diligence and internal guidelines. This is something that banks should leverage by efficiently servicing IAMs, as it gives them access to assets that have already been secured and vetted, effectively cutting down required resources for client acquisition.
One of the most important factors for success is that independent asset managers are indeed independent. This allows for adaptability and responsiveness private banks can only dream of. IAMs do not have imposed geographical delimitations or a minimum net-worth to go hunting for clients. This freedom enables them to have a greater mix and adapt to macro market shifts such as trends in wealth creation or new fiscal regulations at a much quicker pace.
Today the trend is clear and many banks are experiencing a paradigm shift that is putting IAMs at the center of their business plan.
Lombard Odier Darier Hentsch & Co. (LODH) is one such banks that has understood that smaller players survive through crises and will remain important actors in the asset management business for many more years. Instead of taking them head on and try to cut them out, LODH has decided to embrace them and integrate them in its ecosystem.
In the hope of catering to their needs and attract their assets under management, LODH launched a b2b networking platform called E-Merging that connects asset managers and brings together various key professionals involved in the private banking value chain such as lawyers or trustees. The platform is open to IAMs who aren’t LODH clients, as well as to private bankers who are preparing their independent asset management business. In more popular terms, this truly is a case of “if you can’t beat them, join them”. Most of the IAMs are former private bankers who have left their bank to start their own business. However, leaving the bank also means they are leaving a lot of valuable information behind. E-Merging allows them to tap into a great wealth of information that helps them advance in their private operations.
In other private banks, IAM departments who service external asset managers are becoming increasingly important and are very different from the low-priority departments they used to be before the 2008 crisis. So it is of capital strategic importance for the banks to cater to their needs and attract their share of assets under management because at the end of the day, they still need to deposit their client’s funds somewhere.
Since the crisis, large financial institutions have had to restructure and cut resources. This has contributed to the injection of many more private bankers looking to set up shop and run their own show into the market. Ironically, the banks lacking the in-house resources to retain business has created a comfortable niche for ex-private bankers turned Independent Asset managers to grow their business. Hani Kalouti, LF Finance, Aberdeen and many other IAMs are most definitely here to stay.