Hong Kong’s private wealth management has remained resilient in the face of the Covid-19 pandemic, thanks to sound asset managed among established groups and the tech-fueled boom by first-generation entrepreneurs.
According to Securities and Futures Commission (SFC) data, total assets under management (AUM) rose 21% to HK$34 trillion in 2020, while private banking and private wealth management recorded a year-on-year increase of 25% to $11.3 trillion. “Hong Kong is already well in the game but the question is how we can remain relevant amid the stiffer global competition for the share of wallet,” said Laurence Li, the Hong Kong Financial Services Development Council (FSDC) chairman.
As such, the FSDC has welcomed the announcement of Wealth Management Connect (WMC), which 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 possesses much potential to preserve 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 is in a tremendous demand for private wealth management services,” an FSDC report noted.
Family offices comprise a high-end subset of the private wealth management business. They have become increasingly important to the whole financial services industry, not just because of the business potential inherent in their massive assets under management, but also as evidence of the financial centre’s overall wealth management capabilities.
There has been robust growth in family offices in recent years. According to Campden Research, there were some 7,300 single family offices worldwide as of July 2019, 38% more than end 2017. Within that total, Asia has recorded growth of 44% during the same period, higher than anywhere else in the world. Hong Kong can leverage this strong growth momentum in Asia and further develop into a regional hub for family office business.
Hong Kong, with its mature and sophisticated financial markets, can meet specific investment needs of wealthier families. They can depend on Hong Kong’s robust regulatory and legal and predictable tax system to ensure asset protection, while the city’s close ties with the Mainland have long enabled it to act as an investment gateway into and out of China.
Further to the FSDC’s publication on “Family Wisdom: A Family Office in Hong Kong” in July 2020, Chief Executive Carrie Lam acknowledged the high growth of the family office business, noting in her 2020 Policy Address that it has become an important growth segment in the wealth and asset management industry.
FSDC has provided recommendations for developing Hong Kong into a family office hub made in four key areas, namely regulatory requirement, tax considerations, talent development and setting up of one-stop liaison and services centre. On the FSDC’s recommendation, a dedicated team, FamilyOfficeHK, was established under InvestHK to step up promotion of Hong Kong’s advantages in local and other major markets, and offer one-stop support services to family offices which are interested in establishing a presence here.
The private sector has also expanded its offerings. HSBC has launched a new institutional family office service in Hong Kong. The bank is 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 pivot to the region.
“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 a management of HSBC Private Banking, Asia-Pacific.
UBS, JP Morgan and DBS are also focusing on their family office units. “When I first joined the bank, private banking was mainly about managing our client’s personal investments,”, according to Amy Lo, Co-Head of UBS Wealth Management Asia Pacific and Head and Chief Executive, UBS Hong Kong Branch and an FSDC council board member. Over time, she said, the industry gradually transformed into wealth management. “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.”
Moreover, as the city offers a broad spectrum of green and alternative investment opportunities popular among family offices, such as wine and art investments, Hong Kong is well placed to accommodate the diversified investment needs of family offices. These unique advantages of Hong Kong should already make it a natural choice for family offices looking to establish a presence in the Asia-Pacific region.
In Hong Kong, Family offices can be broadly defined as Single Family Offices (SFOs) and Multi-Family Offices (MFOs). SFOs are set up by a single family and only serve the needs of that family and its members. MFOs serve multiple families where sometimes these families may not be related to each other. Some MFOs are owned by third parties and might operate like asset management companies.
In January 2020, the SFC issued a circular on “The licensing obligations of family offices”, providing some formal guidance on regulating family offices intending to carry out asset management or other services in Hong Kong. The regulator has clarified that SFOs are not required to be licensed if they are not being run as a business.
Thanks to the rapid growth of wealth in Asia, there are increasing opportunities in the wealth management industry in Hong Kong. Technology is also making a difference. UBS’s Lo thinks innovative technologies impact all businesses, including wealth management. New technologies such as robot-advisors, artificial intelligence and virtual reality, are all transforming the industry. Practitioners must embrace technology and keep up with the latest developments.