“ New regulations have hit small and midsize external asset managers the hardest."

LEADERS LEAGUE: External asset managers have a significant presence in the Swiss wealth management industry. Can you explain their role and how widespread they are in Switzerland?

Martin Anderson: EAMs are indeed a vital part of the Swiss financial landscape, managing nearly 20% of the overall assets under management (AuM) of Swiss banks. There are roughly 2,500 EAMs and trustees who handle around CHF 500 billion in AuM. The industry is diverse and fragmented, ranging from small boutiques with a couple of people managing less than CHF 100 million to mid-sized EAMs handling CHF 300- 700 million, and even larger companies that rival small private banks with their teams and AuM volumes above CHF 1 billion.

The regulations governing Swiss EAMs have changed recently. Can you elaborate on this shift?

Swiss EAMs enjoyed a light regulatory environment for decades, but things changed with the introduction of the Financial Institutions Act (FinIA) and the Financial Services Act (FinSA) in 2020, which took full effect in 2022. EAMs and trustees now need a license from the Swiss financial market supervisory authority FINMA, and they are subject to prudential supervision. This includes complying with certain rules of conduct.

We are in a transformative period for the industry, and the effects will continue to shape the Swiss EAM landscape.

What impact have these new regulations had on the EAM industry, especially on small and mid-size firms?

The new regulations have significantly influenced the business strategies of external asset managers, requiring many, especially smaller and mid-size ones, to adjust their resources and organization to meet the demands of the new requirements. This has led to many different solutions, such as outsourcing arrangements, partnerships with other players, or even corporate reorganization transactions. It’s a transformative period for the industry, and the effects will continue to shape the Swiss EAM landscape.

Can you tell us about the effects of the new regulations on small and mid-size EAMs, and how this has shaped the industry?

The new regulations have hit small and mid-size EAMs the hardest. Unlike larger firms, they don’t have the resources and staff to deal with the new requirements on their own. This, coupled with increasing IT needs, client expectations, and the fact that many small EAM owners are nearing retirement, has driven consolidation in the market.

The result has been a number of corporate transactions, such as mergers and share exchanges among smaller EAMs. Some have also sold their shares to larger institutions. But interestingly, the number of traditional mergers and acquisitions is relatively low compared to the overall activity in the EAM industry.

This is partly due to alternative turing approaches, like transfers of client relationships from exiting firms to others. Since EAM businesses rely on contracts with clients and relationship managers, they can be transferred without a complex M&A process.

So, the Swiss EAM market’s consolidation has seen, and will likely continue to see, a variety of transactions, including transfers of client relationships or even simple client referrals, in addition to the traditional mergers, which we’ve been actively involved in over the last few years.

Interview by Aude Ghespière.