External Asset Managers: A Market in Turmoil
Credit Suisse is the world's largest service provider for external asset managers (EAMs). Their world is changing dramatically, but Daniel Renner, Head of Global EAM, remains optimistic.
Urs Schwarz: The regulatory environment in Switzerland is becoming more and more demanding. Smaller banks, in particular, can hardly manage the additional costs and extra work involved. An opportunity for a global EAM?
Daniel Renner: Small private banks are currently consolidating, which offers interesting opportunities for us in the EAM business. First, in the next few years we expect a number of acquisitions and mergers. This is an exciting development for us, because almost all of the largest EAMs here in Switzerland were formed in the course of such M&A deals. When two banks merge, they not uncommonly hive off a new company in the form of an EAM. That means a potential new client for us. Second, we assume that many private banks that are still competing with us will get out of the EAM business because the investments in terms of the platform and infrastructure are becoming too much for them. Here too, consolidation is likely to occur. And third: certain smaller banks will probably give up their banking license and pursue an EAM license instead. That presents a very promising opportunity for us to gain them as new clients.
Did the sustained regulatory pressure lead you to adjust your business model?
Formerly, we offered all our services to all the EAMs. That no longer works, because the business has also become more complex and time-consuming for us. As a result, we now tend to focus more on the EAMs that are well positioned for the future. We have retained our unique business model: Each EAM under contract with us is supported by two people, namely an investment advisor who sits on the trading floor and a relationship manager. With this model, we ensure outstanding client service.
Do you expect further consolidation of the industry?
Compared with international markets, Switzerland is underregulated in the EAM business. The Federal Financial Services Act and the Financial Institutions Act, which are currently in consultation and will take effect in 2017, are now correcting this. Regulation will be significantly tighter; for example, in the future Swiss EAMs will also have to obtain a license. Smaller EAMs will probably disappear, but we do not believe that the assets managed in the EAM business here in Switzerland will shrink as a result. The plain fact is that many clients want independent advice. The EAM can offer them this advice. Most EAMs work with three to ten custodian banks; we are one of these, and naturally, if possible, we want to be the one with the largest share of wallet.
How would you describe the EAM market in Europe?
It varies a lot from country to country. Traditional EAM business is almost nonexistent in some countries, while in others it is substantial. Of the markets in Europe that we actively manage, the two most important are the UK and Germany. Even after the sale of the onshore private banking business, Germany remains a key market for us, which we now serve from Switzerland and Luxembourg. With our multinational service offerings and with EAM booking centers in London, Luxembourg, Guernsey, Gibraltar and Switzerland, we hold an excellent position. Any EAM, no matter where it is located, can choose which platform to use for its clients.
What about Asia?
We operate an EAM desk in Singapore and in Hong Kong, with just 30 people. In Asia, however, we are growing at a lower rate than the direct private banking business, which is posting very high growth rates. This is because the demand for independent advice generally grows as the market matures. Asia is not yet as far along in this regard as Europe. But the signs point to growth. Our outlook for the near future is very positive. Not only for Asia, by the way, but also for Latin America, which we manage from Zurich with about 40 employees. We are seeing good growth rates there.
How do you work with Private Banking? After all, you serve its competitors.
Extremely well. Basically, private banks and external asset managers follow two different business models. Because the markets are extremely fragmented, the two models complement each other far more than they compete. As a result, there is very little friction.
You launched eamXchange a year and a half ago. How has that platform developed?
Some 4,000 users use eamXchange today, with about 1,000 of them online daily. Everything is fully transparent. Each post can be rated, bookmarked or shared. You can see how many EAMs click on which products in the investment area, how our own products fare and what topics our clients are interested in. EAMs can offer services to each other and contact each other. Many of our specialists post on eamXchange or operate their own blogs. This allows the EAMs to turn directly to the specialists, who in turn get unfiltered feedback from our clients. We organize about 150 events each year, almost all of which are presented on eamXchange. Users can access documentation as well as recordings of the speakers at any time. We have started to organize online events as well. We recently held a FATCA chat that showed how much interest there is in regulatory issues now. Some 1,500 users logged in live or downloaded the transcript later.
Do you have plans to expand?
Of course, the potential is huge. Our declared goal is to be the indispensable "place to be" for the EAM community. This means that we must remain innovative and, among other things, also continue to expand eamXchange.
What other factors determine success or failure in the EAM business?
The relationship with the EAM is an important driver, of course, but in addition – even more than traditional private banking – our business is a platform business. It's essential to provide a robust platform on which clients can independently process transactions and do research, and which also has social media elements. So we will continue to make every effort to keep steadily developing our platform.
What is your assessment of the past year?
It was very satisfactory. EAM assets now constitute about ten percent of Credit Suisse's global wealth management. Although we are in the midst of a transformation, and regularization in Europe and the adaptation of our business model have meant an outflow of funds, we are seeing stable growth. I am especially pleased about this because the business has very recently become significantly more demanding.
Where do you see the greatest challenges?
I call it transformation squared. On the one hand, we are in the midst of an end-client-specific change process; that is, European clients want to regularize their situation and are withdrawing funds. On the other hand, the consolidation of the EAM business is in full swing, causing the occasional headache. Managing this dual transformation, which will probably last another two to three years, while staying successful and even taking advantage of new opportunities wherever possible is a major challenge.
What are your goals for the year ahead?
First: In the midst of the upheaval, further increase yields and assets. Second: Despite the high regulatory demands, go back to spending more time with clients. And third: Motivated people and an excellent team spirit that resonates with clients.
How are you tackling the third goal?
It certainly helps if we accept the inevitable, such as increased documentation requirements, as necessary and go back to talking more with clients about opportunities. Beyond that: Celebrate successes and milestones. Praise employees more for their good work – and do that at all levels.
Some people climb mountains as a hobby. What do you do in your free time?
I enjoy spending time with family and friends … and I climb mountains. Almost every weekend finds me on one or another mountaintop. It's my passion. I just really enjoy being outdoors. Even as a child, I went hiking a lot with my parents. I usually start early on Saturday morning. It's an unbelievable feeling to be standing on a summit by ten o'clock looking out over half of Switzerland.
Which is better, going up or coming down?
Going up. If I had my choice, I'd stay at the top.