Although Beijing’s planned imposition of a security law in Hong Kong has raised fears that the territory’s freedoms and the independence of its judiciary might be further eroded, Bruno Lee, chairman of the HKIFA, expressed confidence that Hong Kong will retain its role as a regional fund management hub.
“Formal links with the mainland such as [the Stock] Connect, Hong Kong’s function as a conduit for capital flows into and out of China, and strong, transparent financial regulation in the territory will continue to attract investors and market professionals,” said Lee, speaking at a media briefing.
According to the the report, “Vision 2025: The future of Hong Kong’s fund management industry”, 53% of survey respondents expect growth of 11%-30% in the total AUM of their own business by 2025, despite potential challenges.
The online survey of HKIFA member firms and interviews with around 20 senior industry executives were conducted between November 2019 and January 2020. The data was collected before the most recent events that have raised concerns about the durability of the Basic Law agreed between the UK and China at the 1997 handover, which is meant to protect certain rights for Hong Kong, including freedom of assembly and speech, and independent courts.
Net fund sales rose $14.4bn last year, after net redemptions of $500m, according to HKIFA data.
The report found that many Hong Kong fund managers are optimistic that the significant uptick they have seen in China-originated AUM since 2015 will accelerate. One in three respondents expect their total AUM coming from the mainland China market to grow 30% by 2025.
They also identified five main trends that are likely to have the biggest impact on Hong Kong’s fund management industry by 2025, namely regulatory change, fee pressure, the rise of the Greater Bay Area (GBA) as a financial centre, an ageing population, and increasing connectivity, in that order.
Yet, although most of the respondents agreed that Hong Kong has a significant opportunity to leverage its advantages within the GBA (which accounts for 12% of China’s GDP), 79% don’t have a strategic plan for the GBA.
“A likely reason is that many Hong Kong-based asset managers already have broader China strategies that include ownership of private or public fund management licences,” said Lee.
Nevertheless, as much as 37% of those surveyed intend to formulate a discrete GBA plan withing the next year, he added.
Tech in asset management
Vivian Chui, head of securities and asset management in Hong Kong for KPMG China, highlighted the rising importance of technology in the industry, especially data and client technology.
Nearly 80% of respondents expect their investment in technology to increase in the next 12 months, with about 21% to be put towards client-facing technology such as digital client interfaces, improved websites and apps. The largest proportion (22.3%), however, is expected to go towards data.
“Asset managers that are thinking about focusing on creating direct customer channels will need to fully understand how to leverage data from and about their customers,” said Chui.
In recent years, asset managers have also faced increased demands to integrate ESG into their investment decisions and to offer more sustainability-related products with 89% of respondents saying they ‘agree’ or ‘strongly agree’ that providing sustainable investing-related products is increasingly important to clients, according to the survey.
But, respondents differed on the likely proportion of AUM that will be from ESG products by 2025. Eighty-four percent expect the proportion to be more than 5%, but only 26% of all respondents expect a proportion of more than 25%.
Nevertheless, a greater focus on ESG investing will require the hiring of (or training of existing) staff with ESG skills, according to Lee.
A shortage of ESG specialists ranked first for the greatest skill shortage expected in Hong Kong among fund managers surveyed.