Are you riding the next wave of growth in Hong Kong’s wealth and asset management sector?

Change is inevitable in the Wealth and Asset Management (WAM) sector in Hong Kong. In a dynamic financial hub like Hong Kong, changes lead to trends, which translate into opportunities and growth. 

Three questions to ask

• How do asset managers harness the environmental, social and governance (ESG) and climate change trend?
• How digitization transforms the operation of asset managers and bring the opportunities and growth?
• How the tax concessions and new legal fund structures further develop Hong Kong as a wealth and asset management hub in Asia-Pacific? 

During the past year or so, we witnessed several new developments within the WAM sector. Financial regulators, who have been much more proactive since the last financial crisis, have been a driving force behind many of these initiatives: reshaping business models, driving new technologies and creating consumer demand.

1. The ESG factors and climate risk transformation

Asset managers in Hong Kong are expected to adopt changes to address the climate change and sustainability issues in order to:

• Meeting investor demand and growing assets under management (AUM)
• Complying with local regulatory requirements and avoiding greenwashing
• Aligning with the global regulatory landscape

Asset managers can harness the ESG and climate change trend by:

• Implementing a strategic plan for the long term through the inclusion of ESG factors into existing and new initiatives
• Understanding the alignment with regulatory expectations and consumer demand
• Strengthening ESG capabilities and focus on capacity building
• Establishing investment processes and risk management framework
• Enhancing disclosure and education
• Conducting ESG stress testing and performance analysis

2. The digital transformation

Digital transformation is prevalent in the WAM sector in Hong Kong, including on

• Greater Bay Area Wealth Management Connect - Southbound
• Electronic Mandatory Provident Fund (eMPF) platform
• Electronic data service providers (EDSP)

Digital transformation requires organizational changes that are customer-centric, backed by leadership, driven by radical challenges to corporate culture, and the leveraging of technologies that empower and enable employees.

3. Tax concessions and new fund’s legal structure in Hong Kong

Hong Kong tax concession

A new tax concession regime has been introduced in Hong Kong to:

• resolve the uncertainty about tax treatment of carried interest in Hong Kong
• develop Hong Kong as a premier private equity (PE) fund center

Hong Kong open-ended fund companies (OFC) and limited partnership funds (LPF)

The choice of jurisdiction of fund’s domicile is important, in considering: 

• there is increasingly stringent regulatory and tax requirements in traditional offshore fund hubs
• the fund structure impacts on the taxation of income from underlying fund investments

The benefits of using a Hong Kong-domiciled fund structure to fund managers are board, including but not limited to:

• Operational efficiency
• Low cost
• User friendly
• Access tax treaty benefits
• Efficient bank account opening
• Financial subsidies