Family offices are a rapidly growing segment of the financial services sector. At a webinar on 21 September, a panel of experts discussed how Hong Kong can ensure it makes the most of the opportunities that are emerging.
For wealthy families, a safe place to park their wealth is of paramount importance, and Hong Kong retains many advantages despite the upheaval of the past year, said Edmond Lau, Senior Executive Director at the Hong Kong Monetary Authority. “Despite all the recent challenges, Hong Kong’s financial sector has been doing extremely well in terms of both resilience and breaking new ground.”
Hong Kong is the second largest destination for cross-border private wealth management globally, after Switzerland. Family offices are an increasingly important slice of this pie: the amount of family office and private trust assets managed in Hong Kong grow by 89% in 2019.
“This remarkable growth is partly explained by a favourable macroeconomic environment,” Lau said. “The Asia Pacific has seen rapid growth in the financial wealth of high-net-worth individuals, which more than doubled from about US$11 trillion in 2010 to US$22 trillion in 2019.”
Currently, Asia is home to around 30% of the wealth of high-net-worth individuals, but only has 18% of family offices. “So there is still much room for growth of this business in this region,” Lau said. “With the unique advantages that we offer, Hong Kong is well positioned to capture this potential growth.”
Anthony Chan, CEO of Isola Capital, noted a couple of recent trends in the family office space.
“We have already seen the emergence of first-generation family offices because of the wealth growth in the region,” he said. “We are now also seeing the emergence of multi-generational family offices in this part of the world, which is quite a new development.”
Hong Kong is also now attracting attention from clients in Europe who are now seeking to diversify their investments.
“They are looking to find a beachhead in Asia,” Chan said. “Both Hong Kong and Singapore have all the infrastructure needed to set up a family office, and all the talent needed as well.”
One challenge that family offices must tackle is that a lot of wealth in Asia is in family businesses. It can be difficult for the next generation to step out from the shadow of their patriarch when it comes to making investment decisions.
Roger King, founder of the Tanoto Centre for Asian Family Business and Entrepreneurship Studies at HKUST, said that family investors are very aware of the saying that wealth does not last beyond three generations. But besides preserving their financial assets, they are also focused on the family legacy.
“Family offices” is a Western term that has come to prominence in the East recently. But, as King pointed out, it is not a new concept here. “In Asia, we have had family offices for many years, we just didn’t call them that.”
Traditionally, within a family business, certain family members would look after the company’s assets and longer term planning. But this is increasingly moving outside the core family business, and becoming more professional and specialized.
King also referred to the culture clash between different generations. Business founders tend to be more cautious, and reluctant to branch out into new investment areas like bitcoin and AI. “So family offices need to design a system that is acceptable to both generations,” King said.
Dixon Wong, head of the Financial Services Team at Invest Hong Kong, said that the city was ramping up its efforts to attract more family offices to the city. The past few years have seen new investor options including the Stock and Bond Connect schemes, and more recently the Wealth Management Connect.
Both Hong Kong and Singapore offer tax advantages and availability of talent. But, as Wong remarked, Hong Kong has the edge in a couple of areas.
“As part of the Greater Bay Area, Hong Kong has access to the GBA markets.” This enables overseas investors to access Mainland opportunities, and also means Hong Kong family offices can tap into the huge and growing wealth of GBA residents.
Regarding these new Mainland investors, Wong noted that he had received feedback that Hong Kong has a language benefit over Singapore, where business is generally conducted in English.
Wong added that further changes are planned for Hong Kong’s tax regime, such as concessions on carried interest.
“All of this puts Hong Kong in a very good position to attract family office investors.”