Singapore-based consumer wealth tech firm Syfe, which manages “billions of dollars” of assets, will use the proceeds from its recent capital raise to build out its operations in Hong Kong and Australia.
According to founder Dhruv Arora, the company is likely to use this as an opportunity to explore partnerships for expansion into Japan and Korea.
Last month, the company closed an additional $27 million in funding, adding to its Series B round in 2021. Existing investors in the latest round include Valar Ventures (run by Peter Theil) and London-based Unbound.
Despite the company’s Singapore base, Arora says the focus isn’t on expanding into neighboring Southeast Asian markets. “We’re targeting developed Asia, not ASEAN,” he told DigFin. “We’re going north.”
He says it is difficult to build a business targeting mass affluent investors in Southeast Asia. People are unwilling or unable to pay for services, and the headline population size obscures the harsh reality. “The absolute number of mass affluent [people] Indonesia’s population is similar to Singapore’s,” Arora said. But in absolute terms, it’s about 1% of Indonesians and about half of Singaporeans.
He said Syfe currently counts about 5% of Singapore’s adult population as its customers, with more than 100,000 active users.
He hints, but doesn’t say, that Syfe is close to the upper limit of market penetration, at least for today’s business. But he believes Syfe has proven that the business model works, and is now looking to roll it out in Hong Kong and Australia.
“These three markets are huge,” he said. Japan and Korea are bigger in terms of both the wealthy and the underlying wealth. But while Syfe was able to enter Hong Kong and Australia on its own, Arora believes the company will need to find partners to enter these other markets. For example, there are traditional fund distributors who need technology partners.
Arora declined to quantify the company’s AUM (the company says it has $79 million in VC funding, but won’t disclose its valuation). By far, the company’s largest business is portfolio management for client investments, which was Syfe’s original product. It has since introduced two more: brokerage and cash management.
The cash management business became viable three years ago when the Federal Reserve sharply raised interest rates in the United States. The brokerage business was designed to offer a different type of fee model based on trades rather than AUM.
It is also useful to have a diverse product line as macro conditions change, which inevitably affects the attractiveness of certain types of investments or asset allocations. And the brokerage business allows for human advice in addition to the algorithms that power the core Syfe offering.
“If you don’t give your customers both options, someone else will,” Arora said.
Arora is looking to add retirement solutions starting in Hong Kong. Syfe has partnered with Manulife, a leading player in Hong Kong’s Mandatory Provident Fund scheme. The MPF regulator has been working on the launch of an ‘eMPF’ to give Hong Kongers easier access to and control over their retirement funds, and the Syfe-Manulife partnership aims to provide digitised advice.
Syfe’s competitor Endowus started out by providing WealthTech services to Singaporeans’ Central Provident Fund accounts.
One type of product Arora won’t be building is allocations aimed at wealthy, accredited investors, such as access to private capital. While rivals Endowus and StashAway are trying to solidify their presence in this space for the wealthiest customers, Arora says Syfe’s business is aimed at the mass affluent.
There is a learning curve for many of these people, as they are first-time investors. Arora noted that during the boom of 2020-21, many fintechs offered access to pre-IPO trading, private equity or other high-fee products, and many clients lost money. “We want to serve high-net-worth individuals who have the basics to understand risk and reward,” he said.
Given that people in the Asia Pacific region still hold most of their liquid assets in bank deposits, the growth potential is huge.
Looking ahead, Arora says the consumer wealth tech sector is healthy. Syfe, Endowus, and StashAway are all profitable. The industry has forced banks to digitize and compete by providing transparency, education, and lower costs to many middle-class and affluent people.
Beyond new products and markets, the next big milestone will be when one or more of these startups becomes large enough to reach $50 billion to $100 billion in AUM.
That’s not enough to upset the status quo (Singapore alone has a trillion-dollar wealth market), but it’s enough to attract potential suitors, such as big financial institutions looking for digital solutions. In five to 10 years, Syfe could consider an IPO in Hong Kong or Australia, but Singapore’s lack of a liquid stock market is a barrier.
“Growth funds have been pulling out of Southeast Asia because there is no local IPO market,” Arora said. “It’s a tough sell for any VC funding model. Fortunately, it’s profitable.”
But he says an exit may not be necessary if Syfe can maintain its current growth trajectory. Arora expects revenue to double in 2024 from 2023, and says margins remain high. “If it’s profitable and rewarding for the team, is there a need for an exit?” he said.
VCs need liquidity events to realize returns, but there are secondary markets for venture portfolios. Arora added that Series B investor Unbound has a permanent fund that could theoretically hold positions for decades.
“If we build a good business, the escape opportunities will come,” he said.