Opening Remarks at Asian Financial Forum Family Office Symposium
14 Jan 2020
Opening Remarks at Asian Financial Forum Family Office Symposium
Edmond Lau, Senior Executive Director, Hong Kong Monetary Authority
Amy, Ronnie, distinguished guests, ladies and gentlemen,
- Good morning. It gives me great pleasure to be here today to join the first ever Family Office Symposium in the Asian Financial Forum.
- With the rapid growth of the number of high-net-worth individuals in Asia Pacific – now surpassing Europe and North America – family office business has substantially expanded in recent years in this region, and has become an important growth driver to Hong Kong’s private wealth management business.
- The Hong Kong Monetary Authority plays an important role in fostering Hong Kong’s continuous development as an international financial centre and private wealth management hub. I’d like to take today’s opportunity to share with you the latest developments in Hong Kong’s private wealth management industry as well as our efforts in promoting this industry.
Situation in Hong Kong
- I would like to specially thank those of you who have come from afar to attend this Symposium. If I may, I would like to take a few minutes first to give a quick update on the Hong Kong’s latest situation to our overseas friends.
- You have no doubt come across a lot of media reports about our city’s social incidents since last summer. With your physical presence here, I hope you have found the situation on the ground far less dramatic than what the news might have suggested.
- Still, these events are taking a heavy toll on Hong Kong’s economy. Our GDP has declined significantly by 2.9% year-on-year in the first three quarters of last year. To alleviate impact on the economy and the affected sectors, the Government is introducing various measures, giving particular assistance to small-and-medium-sized enterprises.
- Despite the crisis, Hong Kong’s financial sector has been holding up very well so far and actually ended the year in better shape. The HKD exchange rate remained stable within the convertibility zone under the Linked Exchange Rate system over the past few months. Towards the end of the year, partly due to the strong IPO activities, Hong Kong dollar had actually risen from the weak side of the Link to the strong side, reaching the strongest level in 3 years and indicating that there is no outflow from Hong Kong dollar.
- Our banking system remains robust. The latest key metrics – capital adequacy ratio of 20.6% and liquidity ratio of 153% – are both well above the international requirements, while the classified loan ratio remains subdue at 0.56%. Aggregate deposits in the banking system registered a growth of 3% in the year up to end-November. On the day-to-day operation of banks, occasional vandalism in the past few months had caused some damages to the branch and ATM networks of some retail banks. These damages have inconvenienced customers, but do not affect the core business and services of banks.
- The capital markets in Hong Kong had another stellar year. The benchmark Hang Seng Index ended the year 9% higher. Meanwhile, Hong Kong continued to top the global league table in IPO fundraising, and successfully hosted the mega offerings of Alibaba and Budweiser. On the bond market side, G3 currency bond issuance volume still saw a healthy 6% growth from 2018.
- There have been concerns about whether the recent social incidents would affect our China’s gateway role. Hong Kong’s gateway position is underpinned by its unique value proposition: to Mainland China, Hong Kong is an effective and trusted testing ground for pioneering capital account liberalization measures in a risk controlled manner. To international firms and investors, Hong Kong allows them to access the China market while continuing to operate in an environment with familiar legal, market and accounting practices. Such value proposition remains attractive and cannot be easily replaced by other Mainland cities. As a matter of fact, the average daily turnover of the Stock Connect and Bond Connect schemes had doubled and tripled respectively last year. This reflected the international investors’ preference and confidence in the continued use of the Hong Kong platform to access the Chinese capital markets.
- Going forward, it looks like 2020 will continue to be a challenging year for Hong Kong given the uncertainty over global trade tensions and local social incidents. But there is also enormous potential for Hong Kong’s financial sector to thrive, as its fundamental strengths and value proposition have remained intact. We will keep the international financial community informed of development as well as opportunities here.
Private Wealth Management Industry in Hong Kong
- Now, let me share with you some of the key developments of Hong Kong’s private wealth management industry.
- Hong Kong is Asia’s largest cross-border private wealth management centre. It is also the world’s second largest international wealth management centre, next only to Switzerland. In 2018, around US$1.3 trillion in cross-border wealth had been booked in Hong Kong. We are also a leading asset management hub with total AUM exceeding US$3 trillion.
- One major driving force leading to the creation of the private wealth management hub in Hong Kong is our vibrant capital markets with one of the greatest diversity, liquidity and depth in Asia. We have close to 1,800 asset management firms, including the top 15 global wealth management firms and around 70 of the world’s top 100 asset managers. We are also the top hedge fund centre in Asia, managing close to half of the region’s total AUM, as well as the second largest PE hub in Asia, after Mainland China, with unparallel access to over half of the private equity deal flows in Asia.
- Our unique connectivity role is further enhanced by the ongoing integration of the Greater Bay Area, or G The GBA combines the nine well-off cities along the Pearl River Delta into a metropolitan cluster with some 70 million people and GDP of US$1.6 trillion. The combined economy is bigger than some G20 countries like Australia. Around 17,000 ultra-high-net-worth families, which is about one-fifth of the total in the whole of China, reside in the GBA. The Central Government’s announcement to explore the establishment of a cross-boundary wealth management connect scheme in November last year also marked a new milestone in the mutual access of financial markets at the personal investor level. The two-way wealth management connect scheme will create new business opportunities for the financial industry, and provide more options of wealth management products to residents of the two sides.
- Going forward, we believe there is enormous growth potential for the private wealth management industry in Hong Kong. Indeed, Asia-Pacific accounts for 30% of the world’s high-net-worth individuals’ financial wealth, but only hosts 18% of the total number of family offices. Similarly, many Mainland Chinese are still under-served by the private wealth management industry given the rapid wealth accumulation in the past decades and the growing need for them to diversify their investments beyond renminbi assets.
- As such, the HKMA has been working closely with the industry in further enhancing Hong Kong’s competitiveness as a family office hub. We are doing this through a three-pronged approach, namely: talent development, platform building and outreaching.
- Talent or soft power is a vital building block for our financial platform. For the private wealth management industry, this is particularly important because the ‘human touch’ and customized services are critical to the success of private wealth management business.
- The HKMA has rolled out various initiatives in collaboration with the PWMA to develop talent in the private wealth management industry. These include the Enhanced Competency Framework for private wealth management practitioners’ training and professional development, and the Pilot Apprenticeship Programme, or PAP. The PAP offers two rounds of paid summer apprenticeship for university students to acquire “front-to-back” experience for a potential career in private wealth management in future. Since 2017, over 130 university students have benefited from PAP. Earlier last year, the HKMA had also set up the Hong Kong Academy of Finance to develop financial leadership and promote research collaboration.
- At the same time, we are striving to enrich Hong Kong’s financial platform so as to enlarge the investible universe for private wealth management. Examples include strengthening our position as the leading offshore RMB hub and the dominant gateway for Mainland China’s two-way investment flows, promoting green finance and investment opportunities, infrastructure financing and fintech in Hong Kong.
- Our overall regulatory framework also needs to keep pace with industry development. For example, the HKMA has recently enhanced the investor protection measures which allow banks to streamline the sale process. The Securities and Futures Commission, or SFC, is also conducting a review on the professional investor regime with the objective to enhance investor experience while affording adequate protection to investors.
- Earlier this month, the SFC issued a circular to provide clarifications on the licensing obligations of family offices. For example in the case of single family offices, if a family office appoints a trustee to hold its assets of a family trust, and the trustee operates a family office as an internal unit to manage the trust assets, the family office does not need to apply for a licence. This is because it will not be providing asset management service to a third party. There are more specific examples given in the SFC circular where a licence for operation is not required. You may look up the SFC website for more information and there is a dedicated email for direct enquiry.
- In recent years, there has been much interest among family offices in private equity (PE) investments. As Asia’s largest PE hub after Mainland China, Hong Kong has made significant efforts to improve our fund platform. A new tax regime has taken effect in last April to provide full fund-level tax exemption to onshore and offshore funds, including PE funds and hedge funds. Currently, the HKMA is assisting the Government in introducing a bill into the legislature to provide for registration of a new limited partnership vehicle for the domicile of PE funds. The Financial Secretary also announced that competitive tax treatment would be explored with a view to attracting PE funds to set up in Hong Kong.
- Impact investing has also garnered the attention of many family offices in recent years. As an asset owner, the HKMA has been leading by example in promoting responsible investments by announcing that priority would be given to Green and ESG investments in managing the Exchange Fund if the long-term risk-adjusted returns are comparable to those of other investments.
- With all the efforts in enhancing the platform, we need good marketing to showcase Hong Kong’s key advantages as a family office hub. This requires more concerted efforts among the government agencies and the industry. In the past year, the HKMA has been working closely with the PWMA, other key industry stakeholders and government agencies to step up our promotion efforts. These include organizing and participating in local and overseas industry events like today’s, engaging in bilateral meetings with family offices and industry practitioners to understand their concerns, as well as producing a pitchbook to disseminate our key messages.
- In parallel, the HKMA is working in collaboration with InvestHK and other government agencies in providing one-stop services to family offices. For those who don’t know, InvestHK is a government agency responsible for attracting and supporting overseas and Mainland businesses in planning, setting up and expansion of their business in Hong Kong. We have set up a family office contact point through InvestHK to offer free advice and services, ranging from account opening, finding office premises, visa application, schooling, to name just a few. We are also assisting InvestHK in constructing a dedicated website with the necessary information for family offices’ operation in Hong Kong.
- Ladies and gentlemen, to summarise my message today, some challenges have been confronting Hong Kong lately. As you can see, our financial system has displayed remarkable resilience amid these difficulties. The core attributes that made our city Asia’s leading private wealth management centre have remained intact. Our China’s gateway role will continue to grow. The authorities will continue to maintain a balanced and progressive regulatory environment that is conducive to the development of private wealth management industry. We welcome family offices from all over the world to explore your opportunities here.
- With that, I wish today’s symposium a big success. Thank you very much.