On 13 March 2020, Jeremy and I met Samuel Rhee and Chiam Sheng Shi from Endowus for a long, lovely chat. Sam is Endowus’s Chief Investment Officer, while Sheng Shi is the company’s Personal Finance Lead.
(From left to right in the photo above: Jeremy, myself, Sam, and Sheng Shi)
Endowus is one of the roboadvisors participating in Singapore’s burgeoning fintech landscape. I first came across Endowus about a year ago and was interested to learn more. That’s because the roboadvisor was (and still is) partnering Dimensional Fund Advisors, a fund management company I have long admired for its investing discipline and overall conduct.
Sheng Shi came across The Good Investors recently and reached out to Jeremy and I to find out more. This led to the in-person meeting on 13 March 2020.
Jeremy, Sam, Sheng Shi, and I covered a lot of ground during our conversation. We talked about Endowus’s founding, its investment philosophy, the company’s strong desire to solve the retirement problem for Singaporean investors, the obstacles it had to overcome to build low-cost investment solutions for investors, and more.
I came away from the meeting impressed by Endowus’s team as well as their passion and actions to help investors in Singapore. Jeremy did too. We are all fighting the same good fight. Below is a transcript of our conversation (edited for length and clarity). This is NOT a sponsored post by Endowus. Jeremy and I hope you will enjoy Sam and Sheng Shi’s wisdom and candid sharing as much as we did.
Introduction of Sam and Endowus
Ser Jing:
Could you please give an introduction about yourself?
Samuel:
Okay. I’m Sam. I’ve been working 25 years in the finance industry on the institutional side. I was at Morgan Stanley for 17 years. And the last job I had was at Morgan Stanley Investment Management Asia where I was CEO and CIO and I was there for 13 years. I worked in London and then Hong Kong for about seven years and I’ve now been in Singapore for 15+ years. When I was on the buyside, I did macro, asset allocation, portfolio construction in public equities and mostly Asia and emerging markets. I became the Chief Investment Officer and ran the money in Singapore. Singapore is the headquarters so we ran about 45 billion total. The portfolio that I personally managed was about US$10 billion to US$15 billion, depending on how markets were and I became the CEO for the last four years I was there.
I am the Chief Investment Officer in Endowus. We have this fancy title called Chairman that was bestowed upon me that I don’t really use but it’s there just because I’m the oldest by far.
Ser Jing:
You look really young actually.
Samuel:
Yeah, I’m turning 48. So the next youngest guy is 11 years younger than me in the office.
Ser Jing: You look 40, at most!
Samuel:
I have a babyface (laughs)! I call it the gift of immaturity. I started in ‘94. So I’ve seen many crises. ‘94 was a bad year. ‘97 was the Asian financial crisis. In ‘99 I saw the tech bubble bursting. 2008 was the financial crisis. Then the 2011 Euro crisis. Now we’ve come here and in the midst of another bear market, and we are experiencing 30% falls, which is unprecedented in nature.
Ser Jing:
In terms of the speed, right?
Samuel:
Yeah, we’re at the very early stages of the unfolding of this bear market but it’s unprecedented in speed and that’s because of the nature of the external shock we are facing. We don’t really know how this goes.
Anyway, back to the introduction! I am in charge of the investment office. I strategize the overall investment framework, the investment philosophy, how we execute on that through the best products. So we’re completely product agnostic – we use whatever product is most suitable and cost efficient for our clients, whether it’s unit trusts or ETFs. We are an independent fee-only financial advisor. That’s the constraint that we have put upon ourselves because we don’t want to be paid by anybody else other than the client.
When you define yourself as a fee-only independent financial advisor, the products that are available to you are tremendous. We went with the best passive or passive-plus product, which was Vanguard and Dimensional Fund Advisors. Vanguard was a strategic partner. We were supposed to do work together, but they pulled out of Singapore a few months before we launched. So that was the story. We were excited to launch with Dimensional as it can only be made available through the IFA (independent financial advisory) channel. On the fixed income side we did not like any existing solutions and there were no decent passive products because of the small SGD fixed income market here so we chose the best manager which was PIMCO, which is very well known by institutional clients but not readily available to retail investors.
Ser Jing:
Not even Dimensional for the bonds portion? Because I think MoneyOwl uses them.
Samuel:
They have a short duration and short fixed income product, which is not globally diversified. We want a globally diversified core fixed income product. Dimensional products are suited for what they’re supposed to do, which is short term or short duration and they have other great products that we are trying to bring in.
Ser Jing:
Close to a money market fund?
Samuel:
I think it’s exactly what it is. Short duration and ultra high quality, you know, AA, AAA, treasuries, and sovereigns. And so I think there’s not much credit, not much high yield or emerging markets. I don’t think there’s any, and the term is just really short duration, so short fixed income products. Not global or through the duration spectrum.
We talked to Dimensional about requirements for a core fixed income product and they introduced a fund for us – a global quality bond fund. Unfortunately, their track record is really short. They just launched it last year with a Singapore dollar share class and we are looking to bring that into our portfolio so we are excited about that.
To be honest, in fixed income, active management is not as sinful as equities. Even in equities, I’ve been an active manager so I know that if you do it well you can do well. It’s just that for the average Singaporean investor, can you do it well? If you are a really long term investor, especially with your CPF money, can you do it well and with the transaction costs and limitations involved?
That’s the elephant in the room: Are there enough guys that are delivering consistent returns over the long run net of fees, for CPF and SRS/cash investment? I have outperformed for eight consecutive years as an active manager. I know it can be done. I’ve seen many people around me do it.
We talk about Warren Buffett, Soros, Julian Robertson, and all these guys. They’ll say it’s possible but net of fees, it is difficult. And most retail investors don’t have access. Last year the top five hedge fund managers in the world got paid over a billion. Four of them underperformed the index I think. This doesn’t make sense, this kind of concept. Warren Buffett is actually supportive of the strategy of just buying an index fund. Passive low cost works over the long term. So why fix something that’s not broken?
Endowus’s investment philosophy and how Endowus is different from the rest
Ser Jing:
All good! So next question: What is your investment philosophy like and has it evolved across the years?
Samuel:
Let’s talk about the Endowus investment philosophy. We are trying to build an investment product that is suitable for 90%-plus of Singapore’s population and suitable for investors’ CPF money, long term, for their retirement goals. That’s the primary raison d’etre. The reason for our existence is to solve this generational problem, the retirement pension shortfall. And if you try to do that in Singapore, you can’t do that without CPF cause it’s such a big piece. It’s 37% of your gross monthly income. We can invest that better for Singaporeans. What we want to do is find and build an investment that is suitable for that particular problem.
We want to build a core investment product suitable to everyone, where they can invest 90-100% of their wealth conveniently, securely and in a low cost manner. When I say core, I mean the product that will build upon your long term sustainable returns based on equities and bonds, equities being the riskier growth asset class, which gives you the long term returns. And bonds being your diversifier and stable returns over time.
People compare us with other robo advisors/online platforms and they say we’re active managers and they criticize us for it. I would say that asset allocation (across different asset classes) take precedence over fund choices. The asset allocation has to be strategic and passive. That’s our philosophy. The problem with a lot of robo guys here is that they’re active asset allocators. As an institutional investor, I know that asset allocation represents 80% to 90% of your returns historically depending on the period. You need a strategic long term passive asset allocation and these guys are doing active management based on their whitepapers with backtested numbers which are not real track records. Fundamentally our asset allocation investment philosophy diverges.
The second thing is that we are really focused on the advice piece. We’re not building a product ourselves like the other Robos. We have lots of product guys (fund managers) like Dimensional or Vanguard and so many thousands of managers out there building great products and they have scale. They have expertise and they can build up much better than us.
So for us, we don’t want to focus on the product. We’re not building a product, we’re not competing with any fund managers. So later on, if those (active allocation) guys do fantastically well, they can be on the Endowus platform and they can build it into a portfolio or offer it as a DIY solution.
It has to be strategic asset allocation. And in the execution of that asset allocation, we find the best product and we are agnostic to the structure. It can be an ETF or mutual fund. It doesn’t matter. It’s still the same funds that Vanguard has, say the S&P 500 fund, and Irish domiciled so it is tax efficient. It is the same product. The ETF and the fund are largely the same and we choose the more cost efficient and provide SGD funds as investors should match their assets and liabilities to SGD which is the home currency without taking unnecessary FX risk.
So basically ETFs are just listed and mutual funds are not but they have the same open-ended structure, same fund and cost structure. So this misunderstanding in the market that ETFs are the only way to be low cost, passive, and indexed is wrong. You can be none of those things for ETFs.
An ETF can be actively managed, high cost, and not indexed. So it doesn’t matter that it’s an ETF. You have to look at the underlying fund, what you’re investing in, right? Is it indexed? Is it passive, is it low cost? That’s what we apply. And sometimes ETFs are more expensive than accessing the mutual fund and mutual funds at institutional rates.
As an institutional investor, I know there’s access to funds at a lower cost. If you are an institution you don’t pay all the fees that people talk about. So what Endowus is doing is saying that as an institution we can group-buy for you.
How Endowus chooses the best investment products for investors
Ser Jing:
Why do you choose the funds that you do and not some of the ETFs in the US?
Samuel:
Now one of the problems with the US ETF fund is US dollars. That’s a problem for Singapore investors. Finance 101 is you need to match your assets with liabilities, including your FOREX liability. You should not be taking needless FX transactions when you invest, especially if the FX transaction cost is high like it is in Singapore for a retail investor.
When you convert SGD to USD, taking a hit there in terms of cost and then investing in USD, being exposed to that, and then later on having to bring it back at whatever exchange rate you don’t know. Then you go to the US and you have withholding tax and other things like inheritance tax issues. Bid-ask spreads on certain ETFs, you know, are another 5-10 basis points, which means you lose some when you hit the offer to buy and then again when you hit the bid to sell. This compares to mutual funds that will always be bought and sold on the same NAV [net asset value] and so no spread and no transaction cost, whereas ETFs have brokerage and transaction costs.
So we looked at all these things and concluded that US ETFs are really expensive and are not competitive for non-US investors. SGX-listed ones are in USD too and have huge bid-ask spreads. So for me after assessing the situation and products, we decided to go with Dimensional and PIMCO for our cash products. And for CPF products, we got the first passive Vanguard funds in there. Two of them exclusive to Endowus clients. Being agnostic to products is really important for us to change products if we find better, more efficient products.
We sourced for the best products most suitable for Singaporeans that are tax-efficient. It’s in SGD or in the case of fixed income, it is hedged to the SGD. For example, we are the ones that actually brought in the Dimensional World Equity product into Singapore. They didn’t have a World Equity Fund here, they didn’t have an SGD fund. We seeded and funded it. Before, it wasn’t available.
We also went to PIMCO and said, “Look, you have a global emerging market fund, but there’s no institutional share class and it is not SGD-hedged. Launch it for us and we’ll seed it and we’ll bring it our platform. We want to give it to Singaporean investors” They gave us some conditions and we know we want to do whatever it takes to bring the best product that we ourselves want to invest in. Within three, four weeks it was done. We seeded the SGD-hedged, institutional share class ourselves, and made it available to our clients on our advised portfolios.
So those are the kinds of solutions that we bring to the table, which is very different from everybody else. This is very different from trying to copy the US Robo model, which is to just buy US ETFs, pick off the list, try to get a tax refund later. In our view, this model is very, very fin-light. We pride ourselves in not only being Deep Tech, but also Deep Fin.
Endowus’s bootstrapping and employee-ownership mindset
Ser Jing:
How did Endowus gain the necessary initial capital to work with PIMCO and Dimensional Fund Advisors to seed the funds?
Samuel:
Okay. So the company is partner-funded and employee-owned. So everybody who’s an employee has the opportunity to invest in the company and they do. All of the employees are shareholders and we don’t have any external shareholders now. No VCs or PEs. The partners put up the money to begin the company. Employees put money in too. And the last round that we did, we didn’t even have room for all advisors who want to invest because employees take precedence. That’s how we structured the company. Its called bootstrapping and we’re bootstrapping not only in reality but in terms of our culture as well. That’s how we like it.
Endowus’s partnership with fund managers to bring the best products for investors to investors
Samuel:
And when we go to fund management companies, there is a language most people don’t know how to speak but I do. Fund managers actually are in a tough spot today because passive is taking over active. It’s a hugely competitive space as well. Think about the number of fund managers out there. They’re not future-proofed or prepared for the future. But if you go to them and make a proposition of what Endowus is about, why our values are aligned. We tell them that we’re going to gather assets and then we’re going to put it into the best products like theirs. Their response is immediately “Great. We’d love to work with you. What do you need?” Because for them, we are a digital asset gatherer and we’re free.
But we’re not a Fundsupermart. We’re not just going to put it on the platform. We’re actually gonna screen and go and get the best funds and provide the best-in-class funds at the lowest cost achievable by working with the fund managers directly.
Protecting investors’ interests, and Endowus’s unique cost-rebates to investors
Ser Jing:
You also direct the money into specific funds and don’t charge a trailer fee.
Samuel:
Yes. I mean the trailer fee, the fund manager doesn’t get, we don’t get it, so in our business model everyone’s interest is completely aligned. It’s the distribution guys like the traditional banks and brokers and platforms like iFast who take all of that. It should go to the client but these distribution and platform guys are taking it and lining their pocket. And the fund managers have to pitch and sell to the banks and platforms and brokers – the traditional distribution channels. It’s precisely why Vanguard gave up and left Singapore as they don’t pay trailer fees and it was impossible to get distributed.
The worst problem though is that it is in the end, the investors who get screwed because the best-in-class funds are often under the radar or not available. Vanguard’s best low cost passive funds are not available to retail investors! So the best funds are funds who are not willing to pay high or any trailer fees. Dimensional and Vanguard by philosophy would never pay trailer fees. And we as a philosophy would never take any. Unlike the iFast, Dollardex, DBSs of the world.
Ser Jing:
And I think Dimensional recently struck a deal with Finexis Advisory.
Samuel:
Actually they supply to a bunch of FAs [financial advisors] offline. They have no problem. They just distribute through financial advisors and not directly to retail or through traditional channels. So they have their own model, which is unique.
Vanguard doesn’t do the FA model. Dimensional started and really grew through FAs in the US. It works here as well although it’s not a huge pool but it’s still decent. So Dimensional is slightly different from Vanguard and that’s why they didn’t pull out.
But good fund managers, in general, are very happy to work with us. They don’t want to pay trailer fees anyway. Especially if you are the best quality or best performing. And so it’s perfectly aligned. So we go to them, we speak their language, we tell them why and we tell them there’s nothing in it for us and they just give us the best funds. We partner strategically with all the major fund managers. We have a great relationship with everybody.
We don’t carry everybody’s product. We don’t carry Aberdeen, Standard Life. You know, we don’t carry Wellington, GMO, Pinebridge. All these guys reach out to me and we keep a good relationship because we are always searching for best-in-class products, the most suitable product for Singapore. We will also provide more funds in the future through new services that we have in plan. It will really help investors with better choice, better advice and better price too!
If someone can come up with a better product, we’ll work with them. Amundi for example. We’re doing some work, looking for products – even on the ETF side as they are a leader in ETF cost. That’s the Endowus investment philosophy. Fund due-diligence, fund manager due-diligence, that’s like a lot of the work. We have to screen for the best funds. We have to creatively think about what product is best suited to represent. So if you do an asset allocation and you allocate to a different market, geographically, Global, DM [developed markets], EM [emerging markets], then you try to find the best fit and we don’t want to do specific things like China and Malaysia funds, but more like big blocks that make sense. And you bring it up to an asset allocation that is passive and strategic.
Endowus’s efforts to lower costs for investors
Jeremy:
Is there a criteria that you use to select funds? For instance do the funds you select have a maximum management fee?
Samuel:
So we target all-in fees of 1% or less including our own advice access fee. Our fees are fixed. So for cash, it is 60 basis points [0.60%] going down to 0.25% depending on how much you invest with us. For the CPF and SRS it’s 0.4%. We said from the get-go, “Look, this is retirement, this is helping people’s future and therefore let’s try to start at the lowest possible.” And also it was influenced by the fact that CPF had already announced that their wrap fees are going to go down to 40 basis points by October 2020 and it was at 70 basis points at the moment and 1% before. So we moved way ahead of the curve last year. They delayed that announcement, but we still went with 0.4%. You don’t know if they’re going to execute, but hopefully, they will. But even if they don’t, that’s fine. Then everybody can invest through Endowus!
So 40 basis points. We started with a flat 40 basic fee and we target only an additional 60 basis points total expense ratio for the portfolio. But we couldn’t get them for CPF. There weren’t enough products because CPF has to include the funds and you have to go through a consultant, Mercer, in the process. It takes at least like six, nine months to go through that. And strict definitions of three-year track record, first quartile performance, et cetera, and bonds, even more onerous. And so there are only like 80 funds left on the CPF list and we couldn’t build a very high quality globally diversified low-cost portfolio. So we fixed the low-cost part by thinking creatively again.
Would you believe CPF doesn’t have a single passive fund or global ETF you can access?
Ser Jing:
I did not realise that.
Samuel:
You can only access the Singapore local ETF. And so it’s STI [Straits Times Index] and ABF Singapore Bond ETF and that’s it. So you can’t build a globally diverse portfolio. How do we fix this?
So we went to Vanguard and met with the CEO Charles Lin at the time, and Gerard Lee the CEO of Lion Global. I asked them to help solve the retirement problem here in Singapore together. We gotta fix the CPF issues of high cost, lack of passive product, and we can do it together. So they already have a product. Vanguard supplies and manages the Infinity Series S&P500 and global equities and so we worked together to get it into the CPF-IS included fund list.
The problem though was that the cost of that fund was too high. The headline expense ratio was like 80 basis points and which included a trailer fee and the distribution was charging a sales charge on top of like 1% or more. We felt that that was ridiculous. We wanted to get it cheaper. They initially offered a standard rebate but we needed to get lower to achieve the lowest cost for CPF members and long term investors. So we pushed them until they agreed to get to a really low number. So in the end Vanguard gave us access at 10bps [basis points] and Lion Global’s wrap went down to just 20bps. We are so grateful for their support. They’ve been very value-aligned and tried really hard to get there with us. So total all-in management and wrap were 30 basis points and including expense ratio, gets to closer to 40bps. Compared to the 80bps and 1% sales charge, it’s a meaningful difference to give people a better chance of succeeding in investing. They denominated it in SGD, locally registered, and also put into CPF-IS. And you can’t get that with even cash ETF access, you know? If you look at it from a total all-in cost angle, it’s certainly so much cheaper than US ETFs.
Ser Jing:
This is off the track but I am actually a little bit confused. Why would Lion Global’s wrap services be needed? There seems to be a more elegant solution where Vanguard could just supply it directly?
Samuel:
Well, first of all they pulled out of Singapore. So the plan was for them to do that. In order to do that they have to be qualified for two things. One is they have to be a locally registered licensed retail fund manager, RLFMC, right? So they have to be a registered licensed fund manager. Secondly, they have to be an approved fund manager on the CPF Investment Scheme. So that’s the second step and the third step is you have to get your fund onto the CPF approved list. So there’s three steps and the moment Vanguard pulls out, they can’t do that.
So Lion Global is locally registered as a retail licensed fund manager. They’re approved by CPF as a CPF Investment Scheme fund manager. And the only thing that was left was for them to put it (the Vanguard S&P 500 fund) onto the CPF system. Because they were no longer there, so we needed to put it back and then fix the cost issue. Also, the underlying Vanguard funds do not have an SGD fund. This is the only SGD fund available.
So there was a new guideline that was introduced by CPF Board just as the first passive fund went in that there will be a cap of 50 basis points. That’s the total expense ratio. We are hoping that the total expense ratio will be a single digit fee expense ratio, so our total expense ratio (including the fund management fee) will be 40 or below 50, all in.
So now it’s in, but it’s only allowed and falls below the 50bps guideline because Endowus introduced the industry-first of giving back 100% rebate of trailer fees. So technically the product is still 57.5, but we give 27.5 rebate to get to that 30 basis point management and 40 TER. So it’s well below 50 and a second passive fund that we just put in is the Global Equities fund. So the Vanguard Global Equities. Similarly 18 basis points that Vanguard takes, 20 for Lion Global, and expense ratio of single digit, so all in its less than 48bps TER. So again below 50. So we’re the only ones who can distribute these as the official TER is higher and no one else rebates 100% of the trailer. So that’s the elegant solution. We looked into getting the institutional ones in but we couldn’t. So we tried to still solve it intelligently by putting another product in at low cost.
So those are the things that we could do to improve the product. So those two funds are passive. They are the first two passive funds in CPF and it is part of our portfolio. The only way to access it (for your CPF) is through Endowus. It (the two index funds) makes up the bulk of the equities allocation, which brings down cost dramatically from what we had before and it’s also available for Cash and SRS if you want to at that lower cost too.
Jeremy:
So for the two indexed funds, your clients are paying a 0.9% total expense ratio?
Samuel:
No, the total expense ratio is a concept that exists at the fund level. So that TER is 0.4% and 0.48% for the two funds – below 0.5%. So we’ve included both funds into our globally diversified portfolio. The whole list of funds will be allocated based on your risk appetite. Whether its 100% equity or 60% equity and 40% bonds, or whatever, we will build our globally diversified portfolio. The portfolio fund level fees (the TERs I mention above) vary depending on the risk level you choose, but effectively your all in total cost of investing in Endowus is less than 1%. For CPF and SRS it’s 0.4% to Endowus for all of our advice and access. Then the fund level underlying fee is 50~60bps. Yeah. So especially if you consider the fact that if you try to build that yourself, like right now through iFAST, everything, it’s probably closer to 2%-3% because you have the platform fee and the trailer fee that they take.
Sheng Shi:
We are definitely the lowest cost platform. Even if you get through Fund Supermart, they charge a platform fee. I looked up the cost of buying the same Infinity fund on iFast and they charge 35bps of platform fees on top of the trailer fees they receive which should be at least 27.5bps. So they are getting 62.5bps of fees for just selling a Vanguard passive fund.
Endowus’s founding and how the founders built the team
Ser Jing:
So the next question is how did you and the rest of Endowus’s founding team meet? Tell us more about the conversations that led to Endowus.
Samuel:
It was a pretty simple story. Basically I left Morgan Stanley. I retired from the firm on the condition that I don’t join a competitor, completely retired. And then I took a year out. So it was a sabbatical for me and I worked 23 years straight without a break and Morgan Stanley was 17 years of that. Within Morgan Stanley, I moved a couple of times.
So I’m very unique in the sense that I moved within the same company and any large financial institution is about joining the same department and doing it for the rest of your life. Like investment banking, research, or whatever. I was lucky that Morgan Stanley gave me the opportunity to move around. Anyway after 17 years I left and took the sabbatical. I needed to restore relationships with my wife, my kids, friends, cause I was so busy doing CEO and CIO.
It’s a role that in asset management very rarely is taken together. And it was forced upon me because of circumstances. It was supposed to be a temporary gig, but in reality it ended up being four years. I enjoyed it as it was a new challenge and made me learn a lot more about being a CEO and running a business more holistically. I think it was fun at times but very challenging at the same time as there were a lot of changes from a regulatory perspective, and we had to beef up governance and oversight and risk management. We had to revamp the whole trading team and other changes that were needed. But it was too much and I finally was able to negotiate a very amicable exit.
During my sabbatical, I went to a theological seminary to study theology, especially workplace ministry and things like the biblical interpretation of money. I find these things fascinating and that was really, really fun. And then I took a Stanford NUS International Management course to learn cutting edge management and other skills and during this time I had set up a vehicle to invest in fintech companies, so I had multiple fintech investments across the region. I stopped doing that once I joined Endowus full-time. But my idea was that I wanted to disrupt the pieces of the financial services landscape through the application of technology and innovative new services. The focus was on the biggest pools of financial assets and potential business opportunities that were not being disrupted.
One was, well it was Wealth Tech. The other one is pieces of the investment banking business. So those two verticals are by definition very relationship driven and very old school. There’s not much innovation, there’s nothing new really happening. There’s no technology being applied. And so those two were the space. I thought wealth was like true to my heart. I have a passion for solving retirement issues. The pension problem is the single biggest generational challenge. It’s like a major problem, not only in Singapore but Korea and other major aging countries.
So I was driven by this mission and I looked at all the robo guys, including the ones in Singapore at the time. There were also four guys in Korea. Hong Kong, Taiwanese, Australia, etc. I actually didn’t want to invest in any of them. And the reason is simple: They’re all product guys. They all have fund management licenses and were building product but just using ETFs instead of underlying securities so you have double layer of fees and inefficient structures. And I wanted to focus more on the value added piece, which I felt was going to be the advice piece and especially retirement related.
That is the more value-added piece and I believe long-term, advice wins. So we need to build an advice company and there are a few guys in the US that were doing robo retirement – like Bloom and some of these guys. So I wanted to do something in that space, retirement and advice. And I was thinking about starting my own company. The biggest one in Korea actually offered me to build that in Asia Pacific. They wanted to back me and give me the freedom to own it and build it. But the values and the ways you were looking at their investments just were not aligned. They will try to build algorithms to outperform. Right? So it’s product again. That was when a friend who runs a VC fund introduced me to You Ning and he said, “Oh Sam, you’re doing fintech. I have a guy who is doing fintech, you guys should meet.” That was it.
So I met You Ning first and we have common connections. So we hit it off from the get go. We were excited that we were so similar in the way we were thinking about things and how it should be different from the simple roboadvisors out there. He had incorporated the company with Greg and started Endowus and had focused on the CPF piece which was the catch for me as CPF is about retirement – or should be.
You Ning’s background was at Goldman Sachs investment banking. He did private equity, was at a hedge fund for a little bit, and then he ran the family office of Mr. Kuok, the founder of Wilmar. But a lot of it was private investments, so he thought my public market background would be a great fit. And then Greg did fund structuring and distribution at UBS, for private equity and venture cap. He also began the payment service at Grab when it was Grabtaxi and only cash!
So they didn’t have that public market expertise, which was what they needed. They wanted to get a CIO, they wanted to get my advice or mentorship kind of thing. And it kind of all came together. So my thing was, “Do I just become an investor or become an entrepreneur and join full time?” And that’s when I thought this group makes a good fit for me to be the older balance and the investment person for the team. Greg, who’s done Grab and payments and who’s actually built product was focused on the COO role. So he’s the product guy. And then You Ning brings the type of market expertise and private markets knowledge but is also meticulous, so You Ning has the CFO role. And then I was a CIO. So functionally those were the three divisions and it was a great fit to build out the company in a robust way. And I really build the investment side of the business. Whether it’s partnerships with FMCs [fund management companies], due diligence on the funds themselves, and building out portfolios to express the strategic asset allocation. So we all had like very defined contributions, very defined roles. And it was a perfect fit and personality wise and we work really well together. So that’s how we came together.
Ser Jing:
Thanks for sharing that. Because when I was looking through the founding team, I was just thinking you have these two seemingly very experienced investors, so how do you decide who gets to do what?
Samuel:
The fourth important piece of the founding team was Sin Ting. So I met them at the end of ‘17 beginning of ‘18. And I officially joined in February of ‘18. Sin Ting joined just before me in November of ‘17. Sin Ting is the other partner – I guess, cofounder as well. We came together as a team and we were licensed in January of 2018 and we started managing money from April and launched our platform in August of 2018 and our retail launch was April 2019.
She has a private banking background. So she was at Morgan Stanley in private banking and then she worked in Nomura private banking. So the other piece is the wealth piece, right? So I’m institutional, we’re all institutional. COO, CIO, so Sin Ting is the Chief Client Officer with private banking experience. Sin Ting fits that bill. Client Facing, client interaction, what clients want, how they should be served. The client experience is very important.
Ser Jing:
So she has a lot of input on how the product should be for the client.
Samuel:
Yeah, she’s the client advocate. So she faces the client and runs the client team where we have 6 registered reps and then she gives feedback to the investment product and tech product and feeds into how the product should be structured.
Obviously, it’s a group thing. You get everybody’s contributions and now Sheng Shi is also on board. He is a rep and he is client-facing, but he also reaches out to the community and videos and blogs and he’s our personal finance lead. He does a lot of wonderful grassroots work in the community and interfaces and partners with CPF Board for example.
Sin Ting leads the more high net worth kind of private banking. We have another person, Lean Sing who was from Citi Gold, so more mass-wealth kind of expertise. And he is great with our clients at the mass wealth all the way up to high net worth clients and really provides value-added advice to clients. He worked in finance and also went for a few years to study Theology and served at a church and came back to finance with us at Endowus as he believed in our values and vision. So we have really been very purposeful in building out the team and filling the gaps.
When you’re building a tech product, you can’t just build a financial services tech product. You’ve got to have deep financial services expertise. So the domain knowledge is very deep. You have to know the trade flows, you know exactly how things are executed, what investment products actually do, how they should be. How to find the best products. Think about tax, FX, and costs and things that others don’t know or don’t think about. So you need to rely on people who’ve had experience and are capable of doing that.We all have a wealth of knowledge and experience in the field that we are in and the clients that we are serving.
So our tech team is actually, it’s like the Avengers, it’s like guys who know finance, guys who know tech, and can build products. We don’t need superfluous stuff or a humongous team. We just need a dedicated team that has the expertise, like 10 people that can do it. Execute. That’s it. We built all the technology in-house and our team has really deep expertise and experience in building out our tech team. Our CTO Joo was at Goldman Sachs Asset Management and UBS and a few other financial firms building trading systems and complex tech platforms. He also built the backend of Stashaway. He has grown into an amazing CTO now leading the team for us. John and Jay, the front and back end leads, are amazing as is our Dev Ops CY. We brought in our Chief Product Officer from Silicon Valley – Jx Lye – amazing guy with great experience and will help take our product to the next level. So we are excited about our tech and product too.
Ser Jing:
So you have your own in-house software development.
Samuel:
Completely. Yeah. That’s why they are called the A team, the Avengers team and we are the B team, the business team. We are confident we have built the most cutting edge and flexible WealthTech platform in not just Singapore but all of Asia. It’s an amazing product.
Endowus’s greatest challenge
Ser Jing:
I’m mindful of time, I’m sorry. So maybe I’ll just ask two or three more questions. I think this one can be very important for individual investors in Singapore. What do you think is Endowus’s greatest challenge in trying to become a lasting investing institute for investors?
Samuel:
There’s a purpose for why we wanted to go in specifically with the goal of trying to to help solve retirement. Helping people secure their financial future, helping people to save and invest, to prepare for their life better. All those things, right? Grand phrases and captions but hollow words unless we can really help people’s lives in a meaningful way.
The most important thing is that I think clients need to buy into the idea of investing their CPF. And that’s a tough challenge. And the reason is that historically people have been told, your CPF is for this and this and it’s not just a retirement solution. It’s really a total social security system. And OA is always for housing, right? That’s what people instinctively think. OA is for housing. You have a retirement piece (retirement account). You have SA [Special Account], MediSave (medical cover) so it solves everything.
But the problem is that housing, I mean really as an investor, and I don’t know if you agree, but housing is probably a poor asset allocation to me at this point in time in this cycle. And equities have corrected 30% but housing has not even begun. So if you look at the opportunity for capital gains, if you look at the fact that it’s a low yielding asset class, and if you look at the fact that if you use your OA, especially for an HDB 99-year lease, it is not an efficient investment.
What you should do with your OA, because your SA is giving 4% to 5%, you should think of this piece as your bond allocation. And use your OA which is giving you just 2.5% (which by the way is not really guaranteed long term) and barely above inflation. Rather than using that for a house, you should really try to invest as much of it as your long term equities allocation. Build returns over the long run and build that for retirement. And it’s perfect for that purpose as it’s locked away and you cannot touch it for 20, 30, 40 years and you save regularly into it as a regular savings plan and it’s a meaningful enough chunk of it. The recent market correction is the right time to start thinking and using this. The problem has been that the costs have been too high and so outcomes have been poor or you get suckered into terrible ILP products. But now with Endowus you can get a globally diversified portfolio for the long term at really low cost which raises your chances of success.
The other reason is that your retirement adequacy is not enough. Even the enhanced retirement sum under CPF is not enough. It’s probably gonna be around $1,500 to $2,000 a month. So it’s just basically not enough to live in Singapore with the inflation rate that exists. So you need to do more and if your retirement account is not enough, your OA (ordinary account) is basically your backup plan, right? And so you need to build it up in a meaningful way. My friend Loo Cheng Chuan talks about 1M65 alot but together with his wife, he thinks if he uses Endowus and invests his OA then he can get to 4M65, that’s 4 million by the time he is 65, which is amazing. That’s the power of investing your CPF.
But the problem is no one knows of this fact and it takes time to change long-held beliefs. That’s the education piece and that’s the biggest challenge that we face. We do a lot of financial literacy and education, and hold events and webinars, but it takes time. And the incumbent banks and platforms are not helping much. Even if we fail, if we can change the way these guys run their business so they lower fees and improve access to individual investors and provide better advice because of the competition we bring then we would have done our job. We are David and they are Goliath in this fight.
But we know it is the right thing. We’re up for the challenge and we’ll do it, but it’s a long haul and it’s going to be a tough ask and it’s going to take a long time. But we’re fine. Time is on our side and we’re patient entrepreneurs, so we’ll keep at it because we know we’re doing the right thing.
Ser Jing:
Fantastic! I guess this is a really good point to end the conversation. Thank you for your time.
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