Monday, 4 March 2024

FSTB’s Joseph Chan: “Hong Kong will remain the family office hub in Asia”

5 min read

By Busch Pu

Hong Kong has started to regain its position as Asia’s wealth management hub despite the devastating economic impact of the COVID-19 pandemic and a fall in assets under management

  • Hong Kong remains a world-class financial centre with depth and scale
  • Attracting global family wealth through promotion and favourable policy mix
  • Attracting and nurturing talent to bolster the wealth management industry

Hong Kong is strengthening its position as a global wealth management hub and has introduced initiatives to become a family office hub for managing wealth around the globe for high-net-worth individuals (HNWI).

Joseph HL Chan, undersecretary for Financial Services and the Treasury (FSTB) in Hong Kong highlighted the city’s strengths as a global wealth management hub.

He said: “Regarding the family offices from mainland China, we have natural advantages like proximity, and the familiarity of the professionals in serving mainland Chinese clients. We have a history of facilitating business for mainland clients, and our professionals understand the regulations of mainland markets.”

Joseph HL Chan, Hong Kong undersecretary for Financial Services and the Treasury (FSTB)

World-class financial centre with depth and scale in its capital market

According to the Hong Kong Private Wealth Management Association, Hong Kong’s private wealth management industry reported a total of HKD 10.6 trillion ($1.36 trillion) assets under management (AUM) in 2021, a decrease of 6% from HKD 11.3 trillion ($1.46 trillion) AUM in 2020.

Hong Kong’s wealth management segment suffered during the COVID-19 pandemic, experiencing a 3.1% decline in HNWI when 5,642 individuals migrated. However, Chan remains optimistic about Hong Kong’s potential recovery, especially with the reopening of borders with mainland China in February 2023.

He emphasised that Hong Kong’s capital market is unparalleled in Asia. The city stands out as one of the world’s most active initial public offering (IPO) fundraising hubs, with HKD 104.6 billion ($87.813.4 billion) raised through IPO in 2022. Hong Kong has maintained its position as the top choice for Asian borrowers in international bonds for seven years running.

He added that Hong Kong manages $2.3 trillion in offshore wealth, 1.5 times more than Singapore, its rising contender in the region.

Under the One Country, Two Systems policy, Hong Kong offers preferential access to mainland markets. This means investors have access to the capital market of mainland China through schemes like Bond Connect, ETF Connect, Wealth Management Connect, and also access to support for venture capital and private equity investment between Hong Kong and Shanghai.

Chan also highlighted that the HKD-USD linked exchange rate system established in 1983 has been sustained for over four decades, backed by foreign reserves exceeding $420 billion.

The system is crucial for family offices as it provides financial stability. Additionally, the city has always maintained a free flow of capital. The Hong Kong dollar is freely convertible compared to other countries like mainland China, India and Russia that have restrictions on currency convertibility.

Attracting global family wealth through promotion and favourable policy mix

During the COVID years, global wealth continued to grow unabated, leading to a surge in demand for family office services. One of the most popular destinations to set up family offices is Singapore, where the number of family offices has grown from 50 in 2017 to around 1,400 in 2022.

Hong Kong started actively promoting its strengths as a world-class wealth centre to rise to the challenge Singapore posed as a contender. It has made a concerted effort to attract more family offices and HNWI to tap into the growing family wealth market.

To further promote the establishment of family offices in Hong Kong, InvestHK, a government agency responsible for attracting foreign investment and supporting overseas businesses, partnered with FSTB to create a dedicated team called FamilyOfficeHK in June 2021.

FamilyOfficeHK serves as a comprehensive resource for family offices looking to set up or expand in Hong Kong. Chan emphasised that the team will help with various aspects of their move including understanding regulations and licensing requirements, identifying appropriate schools for their children, and understanding Hong Kong’s culture.

Chan said: “In terms of promoting our strengths, we are allocating more resources to do the right marketing and promotion to make sure that those who are not aware of our strengths will now become aware.”

Hong Kong’s recent efforts to lure family wealth resulted in the allocation of HKD 100 million ($13 million) in the government budget over the next three years for this purpose. InvestHK will further promote family offices, including holding events such as the Wealth For Good in Hong Kong family office summit held in March 2023.

About 40% of the family offices in Singapore are established by mainland Chinese nationals. Chan said that Hong Kong has the upper hand over the mainland Chinese clientele compared to Singapore due to its preferential access to mainland markets.

He added that there is a proposal to the Legislative Council to offer tax concessions for single family offices in Hong Kong. By May 2023 the concessions will be applied to the financial year starting 1 April 2022.

Chan highlighted the four comparative edges of Hong Kong’s tax concession scheme. First, they are not required to invest in local underlying assets, which sets them apart from other jurisdictions. Second, the minimum requirement for setting up a family office in Hong Kong is to locally hire two persons, not necessarily Chinese nationals. Third, Hong Kong does not require any pre-approval before setting up a family office. Lastly, the tax laws are transparent and clear, offering certainty and transparency.

Attracting and nurturing talent to bolster the wealth management industry

Anticipating a strong recovery and influx of global wealth, Chan acknowledged that one of the challenges that Hong Kong is facing is talent shortage. To address this issue, the Hong Kong government has been taking steps since 2016 to enhance talent training for the asset and wealth management sector.

When asked about the future of Hong Kong as a family office hub, Chan replied: “We will remain the family office hub in Asia because the trend we see among the first family offices is that they tend to diversify their asset base in a much broader way geographically, than probably five years ago. It will put further pressure on Hong Kong, but given the policies we have put in place, we’re trying to keep that edge in place.”

He highlighted a pilot programme that provides subsidised training and internship opportunities to undergraduate students, that has been well-received by the industry.

The Financial Secretary announced in March that the budget includes an extension of the programme for three years. Additionally, the government has allocated HKD 100 million ($13 million) for an initiative to push for family offices that includes dedicated training for relevant wealth management talent.

Chan said: “The importance of talent in the wealth management industry cannot be overstated, as it is ultimately a people business. The government will continue to provide support and avenues for talent development in Hong Kong.”

Chan sees Hong Kong having a strong comeback story in the wealth management industry, given its scale, fundamentals, and access to mainland China. With the challenges, uncertainties and competition in the region, Hong Kong cannot afford complacency. The city is taking steps to enhance talent training and development and implements policies to maintain its position as the family office hub in Asia.

 


Institution: Financial Services And The Treasury Bureau
Country: Hong Kong, China
Region: East Asia
People: Joseph Chan
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