In a survey of 35 wealth managers, 71% of respondents said that Mainland China is the largest growth opportunity, compared with 67% last year, with the GBA being a key driving force. On average, 40% of AUM is currently sourced from Mainland China, with the figure expected to increase to 54% by 2025.
The continuing liberalisation of China’s financial services sector should allow Hong Kong to develop further as an international wealth and asset management hub in the GBA, and to let financial institutions in Hong Kong penetrate the Mainland market, noted the fifth annual PWM report, co-authored by the Private Wealth Management Association (PWMA) and KPMG China.
Survey respondents predict a 5-10% compound annual growth rate (CAGR) for industry AUM over the next five years in Hong Kong, with family offices and the younger generation as key growth drivers, in addition to the opportunities in the Mainland.
Although positive, the Hong Kong’s wealth managers seem more circumspect and cautious than at the start of the year – before the Covid-19 outbreak in February and Beijing’s imposition of a National Security Law in June.
A survey of Hong Kong Investment Funds Association members between November 2019 and January 2020 found that 53% of them expected growth of 11%-30% in the total AUM of their own business by 2025.
The Hong Kong PWM industry saw net inflows of HK$681bn ($87.8bn) in 2019 (about 9% of December 2018 AUM), overcoming a challenging period of political unrest followed by the Covid-19 pandemic. This, together with a 10% return on assets, led to significant industry AUM growth of 19% to HK$9.1trn last year, up from HK$7.6trn in 2018, said the report, citing the Securities and Futures Commission’s “Asset and Wealth Management Activities Survey”, published in August.
“Despite global and local headwinds since last year and in the face of the Covid-19 pandemic, the industry has remained resilient and we were pleased to see positive AUM growth and net inflows in 2019. Continuing development of the mainland China market, particularly the GBA, will provide the industry with significant opportunities,” said Amy Lo, chairman of the executive committee of PWMA, in a statement.
Regulatory compliance requirements continue to be the greatest concern among the surveyed member institutions in Hong Kong, followed by “political instability”, and “macroeconomic
environment and market volatility”.
Indeed, more than 90% of surveyed firms cited “KYC and AML” and “sales practices and suitability” as the areas requiring the most resources, in line with the findings in 2019.
Percentage of respondents’ ranking of their top three PWM industry concerns
In terms of investment strategies, there has been a “fundamental shift”, with around two-thirds of surveyed private bank clients seeking to “enhance yield in a low interest rate environment” as
their most important investment objective. Many clients remain interested in equities, especially “value opportunities”, while there is also increasing interest in sectors such as technology and healthcare, according to the report.
Overall investment focus amid recent macroeconomic uncertainty
Covid-19 is also transforming work practices and likely to change the operating models of many firms.
Many PWM institutions have ramped up infrastructure support within a short period of time to allow client-facing staff to be more effective in engaging clients remotely. According to the client survey, 98% of surveyed clients said that the industry is meeting or even exceeding their expectations during the pandemic.
“The industry increasingly recognises there is an accelerating shift to digitalisation that will change client expectations in a post-pandemic world,” said Peter Stein, PWMA’s managing director in the statement.
However, PWM clients’ digital preferences and expectations vary across the advisory process.
There is a clear preference for investment research, portfolio reporting, AML transaction reporting and trading to be delivered through digital channels. On the other hand, face-to-face meetings remain essential for conducting strategic and other sensitive discussions, such as portfolio review and on-boarding.
While there are clear benefits to using digital solutions, organisations can face several challenges during the adoption process. Seventy-one percent of surveyed member firms cited lengthy or costly implementation processes as a “top-three” challenge when working with Fintech providers.
Legacy system integration and compatibility issues have become the main challenge around using technology, and cybersecurity threats and risk of data breach remain key concerns.
Top concerns and challenges around using technology
The Hong Kong Private Wealth Management Report is largely based on an online survey of PWMA member institutions — of which 35 of the 44 member firms responded — and a client survey, as well as interviews with industry executives in Hong Kong. Both surveys were conducted from June to July 2020.
The PWMA is a voluntary association that promotes the growth and development of the PWM industry in Hong Kong; KPMG member firms and its affiliates operating in mainland China, Hong Kong and Macau are collectively referred to as “KPMG China”.
