SINGAPORE (Mar 20): Fund advisory platform Endowus aims to help investors grow their retirement funds in a cheaper and faster way over time by beating the guaranteed interest rates CPF offers.
Aimed squarely at the huge pool of under-utilised CPF savings, Endowus wants to help clients build their nest eggs by selecting funds managed by other managers — such as Pimco and Eastspring Investments and Vanguard — some of which are not easily available to retail investors.
Endowus also charges its clients a low and flat all-in fee, which, over time, can mean the difference between a profitable or loss-making portfolio.
“We keep it simple, keep it low cost, and yet keep it sophisticated,” chairman and CIO Samuel Rhee tells The Edge Singapore in an interview.
To tap a wider pool of potential investors, the three-year-old start-up is partnering with 50-year-old UOB Kay Hian. The largest local broker in Singapore has recently become the first CPF Registered Investment Administrator in 14 years. With this status, UOB Kay Hian is able to draw the investment amount directly from an investors’ CPF agent bank and channel the CPF money into the portfolios advised by Endowus.
“It was shared desire to fix the CPF investment problem,” says Gregory Van, Endowus’s co-CEO and COO, referring to the partnership with UOB Kay Hian, “and that means, providing a better experience for the customer, give better advice, at a lower cost, but working within the CPF investment scheme framework.” Endowus believes its competitive advantage is in the removal of a common yet hidden pain point experienced by many investors who entrust money to professional fund managers — the numerous fees and charges that eat into the principal invested.
Besides the fees charged by the managers themselves, in some funds, distributors and agents also take a cut. These fees vary in quantum and are deducted at different stages — for example upfront or when an investor liquidates his position.
As a result, what should have been a 6-7% average annual return can be whittled down to just 3-4% only. “If they experience poor investing outcome, it doesn’t matter if its $10,000 at DBS, or $10 million at UBS, the experience is not that different,” says Rhee.
In contrast, Endowus charges a flat, all-in fee of 0.4% for CPF funds. Besides CPF, clients can use funds from their Supplementary Retirement Scheme (SRS) or pay in cash as well. SRS funds incur the same 0.4% fee as CPF, whereas for cash payments, the rate ranges from 0.6% for investments $200,000 and below, to as low as 0.25% for $5 million and above. Citing research done by the likes of Morningstar, Endowus notes that over time, these low fees will have a significant bearing on total returns versus traditional fee pricing structures.
Behavioural problem
While Singaporeans have always worried about retirement, the way they save up for retirement has changed. For example, their decades-long love affair with property investments has lost some of its shine in recent years because of limited upside and low yields.
“In order to prepare for your retirement, you need to use financial market investments, so that you get the long term returns of the market, which is like 6 to 8%. The 2.5% is great, but is not enough,” says Rhee, referring to the CPF Ordinary Account interest rate.
Endowus hopes clients will sign up for a regular savings plan via their CPF funds. By doing so, they are, in effect, practising dollar-cost averaging which Rhee says can fix a common behavioural problem in investing. “You can try to time the market, but you don’t know when to go in, or come out; you chase the markets on the way up, on the way down,” he says.
“The longer you invest, the average return is what you get. So, if you invest one year, there’s volatility of up 100% or down 50%; if you are in for two, three years, then that volatility narrows to a smaller average return up and down. But, if you invest 10, 15 years, 20 years, then you get to an average return which is closer to the market, which is 6, 7%. The CPF is a perfect structure from which you can build your retirement,” he explains.
Endowus’s ideal customer is someone 30 to 50 years’ old, which with a certain amount of investible CPF balance, which gives them a longer lead time for the investments to grow before in their peak income-generating years.
Endowus says the company has some high net worth and institutional clients who have put in millions. However, the average ticket size is now between $50,000 and $200,000 — and trending lower with time. This is because Endowus is winning over more individuals and their money in CPF and SRS, thereby lowering the average. The minimum commitment is $10,000.
Blue chips
In their previous careers, the team at Endowus is used to handling much larger sums of money. Many of them are graduates of top schools such as Pennsylvania, Harvard and Stanford, and used to work for leading financial institutions. For example, Rhee, the chairman and CIO of Endowus, was previously CEO and CIO at Morgan Stanley Investment Management in Asia, managing portfolios of more than US$10 billion.
Van, co-CEO and COO, was an UBS investment banker, and then Grab, where he led the launch of Grab Pay, the digital wallet used by Grab users to pay for their rides, food and shopping. For You Ning Sun, the other co-CEO and CFO, his current office at Endowus is just a couple of hundred metres away from his former workplace — the family office of palm oil magnate Kuok Khoon Hong who also owns Wilmar International.
Similar to Rhee, Sin Ting So, Endowus’s head of client experience, was at Morgan Stanley. She was also with Nomura. Jx Lye, the chief product officer, was at the Economic Development Board and then Dropbox. Joo Lee, the CTO, joined Endowus from StashAway. He was previously a software engineer at Goldman Sachs and Alphadyne Asset Management. Jason Huan, who joined most recently as the chief marketing officer, held similar responsibilities at Lazada in the Philippines and Singapore.
Endowus was founded in 2017 by Sun and Van. So joined later that year, followed by Rhee in early 2018. The outfit started by providing investment advice but in a lowkey manner.
The tempo, however, stepped up throughout 2019. First, in April, Endowus started marketing to retail investors. In October, it won the go-ahead to go after CPF money and the following month, to tap SRS funds. To date, Endowus has attracted more than $100 million in amount under advisory. “We are charting good growth,” says Rhee.
Validation and valuation
Thus far, the company’s funding has come from the team itself. Endowus prefers to describe itself as a “employee-owned” company, in line with many start-ups. At the company’s office, everyone wears the same dark blue round-neck t-shirt. A row of bookshelves groans under the weight of economics and business titles ranging from Alan Greenspan’s The Age of Turbulence; Robert Fisk’s The Great War for Civilisation and, naturally, the investors’ “bible”: Benjamin Graham’s The Intelligent Investor.
The most recent fund-raising round was fully taken up within the company. Everyone was offered a chance to buy a stake, including the most junior engineer. “We have a few advisors — very high-quality advisors — but they are not allowed to buy, because the employees took it all up,” says Rhee.
The funds will give it a runway for another 18 months, according to Endouwus. The key spending thus far has been on marketing, as the company steps up efforts to raise its profile and get the message out to a bigger audience. Van’s larger-than-life face, for example, is seen at one of the entrances of Raffles Place MRT station.
However, towards the middle of this year, Endowus plans to tap external funding so that it can start its next growth phase, which includes possible expansion outside Singapore.
While nothing is firmed up, the company is looking to VCs and other investors to help with not just the funding, but to also validate Endowus’s business model. “We want investors who help us grow strategically and that may include friends and family,” says Van.
And like any respectable start-up, the team running Endowus harbours ambitions of a nice valuation its own, even with the current volatility. "It's too early to tell, but the market will find a value for us that is appropriate and we feel that any downturn, while it is painful short term, will be an opportunity for consolidation and for us to prepare for the next cycle in a big way!" says Rhee.
