Hong Kong’s private wealth management industry has remained resilient in the face of the Covid-19 pandemic, thanks to the sound asset management of established groups and the tech-fueled boom by first-generation entrepreneurs.
Total assets under management rose 21% to HK$34 trillion (US$4.4 trillion) in 2020 from the year before, while private banking and private wealth management increased 25% to US$11.3 trillion, data from the Securities and Futures Commission (SFC) show. “Hong Kong is already well in the game but the question is how we can remain relevant amid the stiffer global competition,” says Laurence Li, Chairman of the Hong Kong Financial Services Development Council (FSDC).
FSDC believes the Wealth Management Connect (WMC) would enhance the special administrative region’s already transparent regulatory framework, technology-friendly environment and professional talent pool. With its proximity to the mainland and experience in serving the China market, Hong Kong is poised to maintain its premier position in the wealth management market.
The WMC is a major breakthrough in which retail investment funds domiciled in Hong Kong and authorised by the SFC will be eligible for the scheme instead of the traditional product by product approval approach. “With the abundance of a 1.3 million high net worth individual (HNWI) population and US$6.5 trillion of HNWI wealth, China offers tremendous demand for private wealth management services,” FSDC said in a report.
Hong Kong’s family offices—which comprise a high-end subset of the private wealth management business—are becoming increasingly important to the whole financial services industry because of the business potential inherent in their massive AUM as well as financial centre’s overall wealth management capabilities.
There has been robust growth in family offices globally in recent years, with the number of single family offices worldwide climbing 38% to 7,300 in 2019 from the 2017 level, according to Campden Research. Asia led the increase, recording a 44% growth in the same period, the fastest in the world. Hong Kong can leverage this strong regional growth momentum and further develop into Asia’s hub for family offices.
With its mature and sophisticated financial markets, Hong Kong can meet the investment needs of wealthy families. These families can depend on Hong Kong’s robust regulatory and legal framework as well as its predictable tax system that helps to ensure protection for their assets. The city’s close ties with the mainland also makes it the ideal investment gateway into and out of China.
Key Growth Segment
After FSDC published a report on “Family Wisdom: A Family Office in Hong Kong” in July 2020, Chief Executive Carrie Lam acknowledged in her policy address last year the high growth of the family office business, which she says has become an important segment in the wealth and asset management industry.
FSDC has provided recommendations to further develop Hong Kong as a hub for family offices, encompassing four key areas: regulatory requirement, tax considerations, talent development and setting up of one-stop liaison and services centre. In line with the recommendations, FamilyOfficeHK was established under InvestHK to promote Hong Kong in local and major international markets, while offering one-stop support services to family offices seeking to establish their presence in the city.
The private sector has also expanded their services in the city. For instance, HSBC has launched a new institutional family office service in Hong Kong. The bank is also investing US$3.5 billion and hiring more than 5,000 new wealth planners to grow its business in Asia over the next three to five years as part of a broader regional expansion.
Greater Asian Interest
“We are seeing greater interest from Asian clients who are setting up and expanding family offices to adopt institutional approaches to build continuity, diversification and resilience in their investment portfolios,” said Siew Meng Tan, Regional Head of HSBC Private Banking, Asia Pacific.
Other international banks including UBS, JPMorgan and DBS are also building their family office units in Hong Kong. “When I first joined the bank, private banking was mainly about managing our client’s personal investments,” says Amy Lo, Co-Head of UBS Wealth Management for Asia Pacific and concurrently Head and Chief Executive of UBS Hong Kong Branch. Over time, the industry gradually transformed into wealth management, says Lo, who is also a member of FSDC’s council board. “Now, we have to take care of the clients’ needs including their families and businesses. It goes beyond investment. It is a holistic approach to managing their total wealth.”
With Hong Kong offering a broader spectrum of green and alternative investment opportunities that are popular among family offices, such as wine and art investments, the city is well placed to accommodate the diversified investment needs of family offices. These unique advantages make Hong Kong a natural choice for family offices looking to deepen their presence in the Asia Pacific region.
Hong Kong broadly defines family offices as single family offices (SFOs) and multi-family offices (MFOs). SFOs are set up by a single family and exclusively serves the needs of that family, while MFOs serve multiple families who may or may not be related to each other. Some MFOs are owned by third parties and operate like asset management companies.
In January 2020, the SFC issued a circular on the licensing framework for family offices, which provided guidance on regulating family offices intending to carry out asset management and other services in Hong Kong. If an SFO is not being run as a business, a license isn’t required, according to the regulatory framework.
Hong Kong’s wealth management industry is leveraging technology to tap increasing opportunities amid a rapid growth in wealth across Asia. With new technologies such as robo-advisors, artificial intelligence and virtual reality transforming the industry, asset managers are embracing technology to keep up with the latest innovations.