The family office business is becoming such an important growth segment in the territory’s wealth and asset management industry, that Hong Kong’s chief executive found room to mention it in her 2020 Policy Address to the Legislative Council.
While much of her speech on 25 November focused on the impact of coronavirus and last year’s political unrest, Carrie Lam also said that to “further develop the family office business in Hong Kong, InvestHK (Invest Hong Kong) will set up a dedicated team to step up promotion of our advantages in local and other major markets, and offer one-stop support services to family offices which are interested in establishing a presence here”.
InvestHK, a government department for foreign direct investment, already provides a range of free services to support the setting up of family offices, including planning, set-up, launch and expansion, and was highlighted by Financial Secretary, Paul Chan, at the Private Wealth Management Association (PWMA) Virtual Wealth Management Week 2020 on 10 November, so Lam’s announcement suggests an extra commitment to enticing family offices to the territory.
According to Chan, there are 7,300 single-family offices in the world, with about 1,300 located in Asia Pacific, and since 2017, the region has recorded a 44% increase in family offices.
A family office is typically a private company that operates an investment or wealth management business for one or more families. They can provides a range of services including investment advice, tax and estate planning, risk management, succession planning and support, as well as lifestyle management and help with philanthropic activities.
Attracting family offices seems top priority for the Hong Kong government. For example, the Financial Services Development Council published a white paper in July that sets out a number of recommendations to create a more conducive regulatory environment for family offices, according to the fifth annual Private Wealth Management report co-published by the Private Wealth Management Association (PWMA) in Hong Kong and KPMG.
Most recently, the Family Office Association Hong Kong was launched on 18 November with the support of the Hong Kong government, and aims to help cooperation between the family office industry and government.
In addition to launching family office support services, Hong Kong has also been easing regulations and offering tax beaks.
REGULATORY INITIATIVES
This year, the Securities and Futures Commission (SFC) – the key regulator of Hong Kong’s financial industry – recently clarified the licensing requirements for family offices, which could attract more family office operators, according to a report by law firm Mayer Brown.
The SFC issued a circular in January 2020 to explain its regulatory position, and it then issued a series of FAQs in September 2020 to provide more details.
In particular, the SFC (with the Hong Kong Monetary Authority – HKMA) clarified exemptions from certain selling requirements regarding family offices: while a single family office established to serve the investment needs of a single family and not being run as a business may not be subject to the SFC’s regulatory oversight, other family office operations may be subject to its licensing regime, noted Mayer Brown.
Meanwhile, Hong Kong’s government is encouraging private equity firms to set up, with measures that might also entice family offices with private equity intentions.
Last year it introduced the Unified Fund Exemption (UFE) regime, which provides a profits tax exemption on qualifying gains on the sale of securities for privately offered funds operating in Hong Kong irrespective of domicile, structure, size or purpose.
Chan announced in his budget last February that he would also introduce tax concessions for carried interest payable by private equity funds operating in Hong Kong.
Next, at the end of August, he introduced the Limited Partnership Fund (LPF) regime “to bolster Hong Kong’s continuing rise as a premier private equity home. And that can only boost our asset-management industry…[and] 32 funds have registered in just over two months’ time,” said Chan at the PWMA event in November.
The LPF Ordinance (2020) is a limited partnership fund regime that aims to attract more private capital (including from family offices), and is similar to regimes in jurisdictions such as the Cayman Islands and Singapore, especially regarding contractual freedom and allocation of liabilities, and it provides greater flexibility and legal certainty in Hong Kong, according to Mayer Brown.
The LPF and EFE ordinances combined “encourages family offices to set up in Hong Kong”, noted Mayer Brown.
There is also parallel effort to tap more regional wealth management opportunities, especially in the Greater Bay Area, which has a GDP of $1.6trn and is home to 20% of China’s high-net-worth families, according to Mayer Brown.
Earlier this year, the HKMA, the People’s Bank of China, and the Monetary Authority of Macao announced the launch of a cross-boundary wealth management connect pilot scheme in the Greater Bay Area (called “Wealth Management Connect) to promote the development and cross-boundary sales of wealth management products through banks in the region.
“Given the growing prosperity and concentration of high-net-worth individuals across the region, the scheme is set to both expand the customer base and encourage more global financial institutions to turn to Hong Kong for their investment and business needs,” said Chan.
