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Embracing the Breadth of Private Wealth: How deep the pocket can be?

Date: 
29 Jul 2019

About three decades ago, ‘private banking’ tended to be the term that the sector was coined and it was mainly about providing traditional banking services to individuals who have accumulated a considerable amount of wealth.  Over time, the sector has transformed into what we now generally call ‘private wealth management’, for that the services have become more sophisticated – aside banking, asset management, brokerage or even consulting services around asset allocation, estate planning, pension, philanthropy, etc. for the high net worth clients are all within the scope.

For its free flow of capital, wide range of investment products available, as well as its strategic positioning as an international financial centre amongst others, Hong Kong has been an appealing choice for private wealth managers as well as high net worth individuals (HNWIs).  According to the Securities and Futures Commission’s statistics, Hong Kong’s asset and wealth management business amounted to US$3.1 trillion as at 31 December 2018.1 The assets under management (AuM) by the private banking and private wealth management business amounted to about US$973 billion in 2018.  Meanwhile, Hong Kong has witnessed a significant growth of HNWIs population from lesser than 40,000 in 2008 to 170,440 in 2017, more than a fourfold increase over the past decade.  The wealth of these HNWIs in Hong Kong was about US$1 trillion, recording an annual growth of 16.3% in 2017.2

Of course, Hong Kong does not only serve local clients.  Like in any other sectors within the financial services industry, Hong Kong is well positioned to serve Mainland and international clients. With the abundance of a 1.3 million HNWI population and US$6.5 trillion of HNWI wealth,3 China is in a tremendous demand for private wealth management services.  As the world’s largest offshore RMB liquidity pool, together with the cross-border initiatives (to name a few, the Stock Connect, Bond Connect and Mutual Recognition of Funds), Hong Kong is the natural choice for this flow of Mainland HNWIs as well as the international wealth managers who want to enter the Chinese market.  Likewise, our simple tax regime and transparent regulatory framework continue to attract overseas HNWIs and wealth managers to Hong Kong.  We recorded the highest growth rate in international market volume (i.e., assets managed/administered in Hong Kong separate from the asset owner’s domicile) at up to 122% in the last seven years, among other international management centres studied in the Deloitte 2018 report.4

Going forward, the potential of the future private wealth management world is set to be here – the Outline Development Plan for the Guangdong-Hong Kong-Macao Greater Bay Area states that Hong Kong is the core city positioned to be the international asset management and risk management centre.  New development is also to be seen around the increasing adoption of technology in the sector – with robo-advisory and Artificial Intelligence technology on the go, wealth management landscape will likely experience some exciting changes. At the same time, we notice that environmental, social and governance (ESG) factors are gaining traction among investors and investment professionals. Private wealth management practitioners should explain to their clients how they have incorporated ESG factors into their investment and risk management process as an attempt to generate higher risk-adjusted return for their portfolios. As we talk with some Hong Kong-based international wealth managers, the industry is ready to embrace these changes and corresponding regulatory development is there to expect.

Taking from here as a prelude to the private wealth management chapter, in the coming months we not only will continue to engage stakeholders to discuss how Hong Kong can best capture the escalating potential of this sector, but we are also looking to come up with policy recommendations for the further development of Hong Kong’s competitiveness in this area.

Do stay tuned and you will hear more from us – on the private wealth management sector initiatives and many others!

 

Christopher Hui 
Executive Director 
Financial Services Development Council

 

 

1 Securities and Futures Commission, Asset and Wealth Management Activities Survey 2018 (July 2019), https://www.sfc.hk/web/EN/files/ER/PDF/Asset%20and%20Wealth%20Management%20Activities%20Survey%202018_EN.pdf

2 Capgemini, Asia Pacific Wealth Report 2018 – Hong Kong https://asiapacificwealthreport.com/reports/population/asia-pacific/hong-kong/

3 Capgemini, Asia Pacific Wealth Report 2018 - China https://asiapacificwealthreport.com/reports/population/asia-pacific/china/ 

4 Deloitte, The Deloitte International Wealth Management Centre Ranking 2018 (2018), https://www2.deloitte.com/content/dam/Deloitte/ch/Documents/financial-services/ch-fs-deloitte-wealth-managemnet-Ranking-2018.pdf


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