Carret Private Capital
Q. Tell us about your firm
Carret Asset Management was started by two ultra-high-net-worth individuals in New York and I was approached by them to set up operations in Hong Kong in 2015.
There are two sides to our business: multi-family office/independent asset manager (IAM) and private investments.
We are very active in the private equity (PE) and advisory space and we tend to do more mid-market deals. On real estate, for instance, we have a partnership with an Asian real estate company that is one of the bigger players in Asia now.
Private banks tend to be more conservative so they don’t do much in the PE or real estate space. If they do, it’ll likely be in bigger brand names like Blackstone. There is also little differentiation in opportunities offered by the banks because the exclusivity of deals within a bank lasts only for three months.
Q. How does your New York head office support the Asia business?
They provide research reports and investment content. Carret Asset Management in New York is my biggest partner and we use their branding.
Q. How big is your team in Hong Kong?
We have more than 15 staff divided into five different private banking teams. All of them are senior bankers. On the investment side, there’s me and two other members in Hong Kong. We also have two colleagues in New York and we share investment content.
Q. Where are your clients from?
Eighty percent of our clients are from Greater China, all of which is new Chinese-driven wealth. The rest of our clients are from US, Europe and Southeast Asia. We don’t take in accounts below $10 million.
Q. How do you charge clients?
It’s an even mix between fixed fee as a percentage of assets under management and transaction-based advisory.
In some cases, we take in retrocessions for transaction-based advisory but clients are fully aware of that. When clients move to us from the banks, they typically leave it to us to negotiate the split of fees with the banks as long as they don’t have to pay more. Hence the retrocessions.
Our newer clients are mostly in discretionary management, which is why we’ve seen exponential growth in our discretionary business.
At the moment, the split between the discretionary and advisory business is 50-50.
We keep everything in encrypted software for our clients and our primary servers are here and properly backed up
Q. How will SFC’s amendment of the Code of Conduct affect your business?
We’re heading towards that direction anyway so I don’t expect much change. We are mainly accepting retrocessions on our historical clients. The key here is that we are fully transparent with our clients. All our new business is based on charging clients a fixed fee, so there is no conflict of interest.
Q. How are you advising clients who are keen in investing in cryptocurrencies and blockchain?
Personally I’m not, but a couple of my bankers are. We are now beginning to work with certain custodians to help clients buy and store digital assets.
Q. Are you looking to venture into any other services?
No, we’re focused on building a pure IAM business though it’s hard not to be distracted. For instance, a leading tech firm approached us with an investment opportunity but we had to forgo it because it will take up a lot of resources.
Q. What is your growth strategy?
We are getting a licence in Singapore, where we are hiring two banking teams, and I would eventually like to get an office in Switzerland.
I am also actively looking into acquiring other firms. We’ve been looking hard in Singapore and are currently in discussions with three parties. IAMs developed much earlier in Singapore and there are some smaller fully licensed ones that haven’t really grown. From time to time, we also look into acquiring firms in Switzerland.
However, there are three main problems with acquiring other firms:
1) There’s a price to pay;
2) You have to do your due diligence to ensure there’s no money laundering business;
3) Whether the team fits in with our firm.
Q. Are you looking at partnerships?
Yes, we are looking at block trading in Chinese equities in the US.
Q. What are you doing on the digital front?
Hiring relationship managers to expand the business is not a scalable model because it’s only as scalable as my next relationship manager hire. We are analysing the fintech space to see how we can employ it to grow our business. One of my partners is SBI Group, Japan’s leading fintech player. We’ve already built a platform for them to sell funds into Japan and are now working with them to build up our fintech platform.
Q. There are many existing providers for account consolidation services, so why are you building a new one?
Most of the current players are start-ups. We are still evaluating them but the idea is to bring in what SBI has, and merge it with the capabilities of the existing providers.
Q. How are you ensuring the security of client data?
We are licensed with the SEC and SFC so we have to be extra compliant as these regulators are very strict.
Our principal source of data is held at private banks. We keep everything in encrypted software for our clients and our primary servers are here and properly backed up.
Q. How has the industry changed in the past five years?
Regulators are becoming more stringent. In the past, they haven’t looked at IAMs as an industry but now that it’s growing really quickly, you are going to see a crackdown.
There will be a lot of consolidation and movement in our industry because it’s so difficult to open an account in banks now. It can take a year in some instances.
Furthermore, as big banks get bigger, you will see many senior bankers joining the independent space. However, it will not be easy setting up new IAMs because of the challenges mentioned and this will lead to more consolidation.
Q. How difficult is it to move assets to the IAM desk of a bank?
It’s difficult for sure and takes some negotiation. In the first year, we’ll ask for retrocessions from the banks, but from the second year onwards, we will move to a fixed fee model and the banks can keep their own fees.
Q. What is the turning point in your career when you decided to go it alone?
Entrepreneurship is one of my core skill sets. I’m one of the key people that developed Julius Baer in Asia and we managed to grow the assets from zero to over $80 billion. As an investment banker, I also enjoyed the freedom of looking at private deals. So when the opportunity to develop the IAM business and analyse private deals came about, I took it.