At Aquila asset management group, Vivien Jain expects half of the company's asset managers to reach retirement age in the next decade, and why the CEO is raising the succession issue. She tells finews.com she expects a second wave of industry consolidation.
Ms. Jain, in the week before Christmas a year ago, Aquila was on red alert. Following a hacker attack, the asset management group had to shut down the IT systems of the service platform. The archives of all partner companies were temporarily no longer accessible. Are there still traces of the hack today?
At the time, we quickly decided to shut down the entire platform IT and rebuild the entire system. I am convinced this was the right decision. If we hadn't done that, I don't think I could be sure today if we were still carrying anything from the attack.
So Aquila feels safe now?
We did everything we could to ensure the greatest possible protection, but there is never one hundred percent certainty. That is one of the lessons everyone should learn from such an incident. Since then, I have to laugh inside when I hear about institutes that believe they are untouchable.
That doesn't sound very reassuring.
Banking systems are already very secure. After all, the hackers were unable to penetrate Aquila Bank's system. But cybercriminals are learning, too.
«Thanks to the turbo ignotion from the hack, we have completely outsourced IT operations»
That's why we have also taken additional measures for our most secure systems and tested the defenses regularly. You can never sit down and think the work is done, but always try to be one step ahead.
Have the perpetrators ever been apprehended?
This is a matter for the police. We focused our energy on securing the operation and getting back to work. As of today, we are massively stronger than we were a year ago. Meanwhile, I take comfort in what we have achieved in a short time. We cannot forget that our more than 80 partner companies also had to be taken under the protective umbrella.
That sounds complicated.
It was a highly complex undertaking and challenging for everyone involved. Thanks to the turbo ignition from the hack, our IT operations are now completely outsourced. It is something we were planning on doing anyway but probably would have pursued with less pressure without the incident.
Who are you outsourcing to?
Last October, we completed the migration to a cloud solution with the support of the provider Isolutions. Of course, we continue to provide direct support for our partners ourselves.
It's not just the systems that have changed. A year after you took over from Max Cotting as CEO, you restructured the Aquila company. For example, IT, Investment & Banking, and the service platform for members are now independent divisions. Has the new organization settled in?
When I took over as CEO, I was allowed to simplify the structure and adapt the management to the size of the company. It was also important for me to focus on the service platform because we are first and foremost a service provider for our partner companies which are all independent asset managers.
«Unfortunately, the financial industry is known for sometimes outdated systems.»
As a result, we created the Partner Center, which, in addition to fiduciary and accounting services, includes direct first-level support. The management team with the two new members of the Executive Board has already settled in well. That's important because our to-do list for next year is long.
Can you raise the curtain on that?
We have a lot of plans for digitization, in the area of fiduciary services and accounting, where there is still a lot of potential. As far as our partner companies are concerned, the topics of next generation and succession are at the top of the list.
This probably does not only apply to partner companies. Aquila probably also needs young people in order not to miss the boat when it comes to digitization and the next generation.
Absolutely, at the moment we need reinforcement above all in dealing with the new ways of working in the cloud. It is not at all easy for us to find young, IT-savvy employees. This is because the financial sector is unfortunately known for partially outdated systems. The working culture is also different from that at Google, for example. That's why we have to see how we can be attractive to digital natives.
Do you know how to do that?
We are in the process of figuring that out. It is also a generational issue since many of our employees have been with the company for a long time. This know-how is enormously important, but it also needs to be supplemented by a breath of fresh air which brings in new ideas and other perspectives.
«I think it's a shame if the newly won flexibility is not used»
We conducted an employee survey some time ago and asked some very critical questions, including about working models. How can we attract people who are not based in Zurich? How much home office can, and do, we want to offer? These are issues that we are dealing with.
Do you prefer the home office as a boss?
I don't like the term. I prefer to talk about flexible working. I'm in the office every day if possible, but I'm against fixed working hours. So I may leave the office at 3 o'clock in the afternoon.
Do you like to go home early in the afternoon?
I like to go home earlier to continue working. I think we are still stuck in very old habits, despite the experience of the Corona crisis. Once I take the 5 o'clock train in the afternoon, it continues to be packed to the brim. I think it's a shame if the newly gained flexibility is not used.
Let's take a look at the operating business. 2021 was a record year for Aquila with 19 billion francs in assets under management, an increase of more than 13 billion francs. But 2022 proved to be much more challenging for the industry.
We added six new partner companies, and the number of members is now 86, allowing us to compensate for the fact that the markets had a negative impact on volumes, and we passed the 20 billion franc mark. But you are right, it has been a challenging year.
The end of the year is also the deadline for independent asset managers in Switzerland. Anyone who has not at least applied for a license to the Swiss Financial Market Supervisory Authority Finma by then will have to cease operations. Has that translated into additional inquiries at Aquila?
Many independent asset managers want to at least give it a try on their own and have taken on the licensing process themselves, rather than joining a larger licensed player like ourselves.
«Smaller providers in particular are likely to be pushed to their limits in the process»
I imagine most of the additional requests will be somewhat delayed. I see the difficulty not so much in obtaining the license, but mainly in keeping it and always meeting all the regulatory requirements.
What do you mean by that?
We have been living with the new Finma license for some time now. Every step you take as a company, for example, has to be reported to the supervisory authority. This involves an enormous amount of administrative work. Smaller providers in particular will probably reach their limits.
So will there be a second wave of consolidation?
I think so. For many independent asset managers, the transition from the world of self-regulation to the world of Finma represents a major change. In the next two to three years, we will see this more clearly. We are watching the market and looking for opportunities. For us, however, the succession issue is of greater urgency at the moment.
Why is that?
At our partner companies, we assume roughly half of the asset managers will reach retirement age in the next ten years. That's why we want to take a close look at the succession issue with all our partners in 2023. We are already doing this now because we know that a successful replacement takes an average of five years. If someone at the age of 67 thinks they are ready for retirement in two years, it doesn't work.
What succession solutions make sense?
In my opinion, it would be tantamount to betraying the client to be employed again by a custodian bank or to refer the clientele to it. That is not the purpose of independent asset management. Once you've decided to go independent, you probably want to stick with it until the end.
«Optimally, you integrate a person between the ages of 40 and 50»
Succession is complex because you can't just transfer a client from X to Y. The relationships between an independent asset manager and his clients are often long-standing and trusting to the point of friendship.
So what do you suggest to the partner companies?
We try to find the best solution together with the companies. Ideally, you integrate a person between 40 and 50 years of age who brings along their customer base and is interested in succeeding you later on. Finding a suitable successor is often very difficult because potential candidates at this age often have other commitments to deal with, such as family and home. Another option is mergers between partner companies, a process we have also accompanied. In exceptional cases, partner companies have even handed over their clients to us.
Does that mean that the assets then fall to Aquila?
In these individual cases, yes, but this should remain the exception. In some cases, however, we are responsible for the portfolio management of our partner companies. We are already integrated into the processes there. If no successor can be found, we could also be there as consultants for the customers. But the number one goal, as I said, is to keep an independent asset management company going independently.
You mentioned that 40-year-olds often have other priorities. Is independent wealth management dying out?
There is no doubt that it is difficult to find young successors. Fortunately, we continue to receive inquiries from people who want to become independent asset managers. It takes an entrepreneurial gene to take this step. We can take a lot of things off our partners' hands, but they remain entrepreneurially independent and act on their own.
And it is precisely this final step into self-employment that seems to be difficult for many younger people.
We have found that anyone who takes this step has very good prospects of success.
Does experience teach you that?
There are individual cases where the business model does not work. But we meticulously prepare the independence and business plans with the interested parties.
«Those who have already deposited a lot of assets may be tolerated by the banks a little longer»
If we have doubts that a model will work, we advise against franchising with us. However, you can never predict 100 percent what will ultimately happen on Day X when a banker goes independent.
Speaking of banks, what role will custodian banks play in the consolidation among asset managers? It is said that the institutions will become the enforcers of Finma. If you don't have a license, you won't be served.
The custodian banks play an important role in this issue. There will probably be a black-and-white scheme and one with shades of gray. Black and white means those who have not even submitted a license application in January will be left behind by the banks. The gray area is much larger, and a two-tier society is emerging here.
Meaning?
Those who have already deposited a lot of assets will perhaps be tolerated by the banks for a little longer, even if they are still waiting for a license. Those who are too insignificant are threatened with termination in the medium term, although there is no clear deadline for how long the licensing process may take. Conversely, the pipeline at Finma is full. The licenses will probably be issued only in dribs and drabs over a longer period.
Vivien Jain became CEO of the Aquila Asset Management Group in March 2021, working for the company since 2014. She continuously assumed more responsibility in the areas of legal, compliance, and risk and was promoted to the Executive Board in 2016. The career of the Canadian-Swiss dual citizen with includes the consulting firm PWC. The Aquila Group currently manages over 20 billion Swiss francs in client assets with 86 partner firms.
