Hong Kong is expected to receive a fresh injection of interest from family offices following the launch of an anticipated new scheme that eases cross-border investments through wealth management products in the Greater Bay Area.

On Thursday (May 6), China's regulators announced new draft rules for the cross-border Wealth Management Connect scheme. The country set a Rmb150 billion ($23.2 billion) ceiling for the trading quota (southbound and northbound) for the pilot scheme, a move that could accelerate the timing of an official launch.

Market participants believe the official scheme launch will be officially launched shortly after the Hong Kong-mainland border opens once again. While the exact timing of that will depend on the status of Covid-19 cases in Hong Kong and China, it could occur during the summer or by early autumn. 

For Hong Kong, the introduction of the Wealth Management Connect scheme could attract high-net-worth investors from mainland China, family investors said, giving the city a new competitive edge, as investors have fled the city over political uncertainties and Singapore has ramped up its efforts to appeal to single-family offices

Proposed in 2019, the scheme follows the launch of Stock Connect in 2014 and Bond Connect in 2017, which allowed two-way investments in stocks and bonds between mainland China and Hong Kong. Prior to the launch of these schemes, it was not possible for individual investors on either side to directly invest in each other's stocks, bonds or wealth management products - although qualified institutional investors were allowed to do so, through the QFII, RQFII and QDII schemes. 

The Wealth Management Connect scheme would help Hong Kong to attract more family offices, particularly from mainland Chinese high-net-worth investors looking to build up their offshore portfolios, family offices told AsianInvestor. 

GEO ADVANTAGE

Grace Law, Fargo Wealth

Following the rules change, more mainland-based family offices will see Hong Kong as a useful investment destination - not least because the city is easier to reach geographically than rivals, Grace Law, COO of Hong Kong-based Fargo Wealth, a multi-family office and external asset manager, told AsianInvestor.

One draw is that Hong Kong borders Shenzhen, a city known as China’s Silicon Valley and home to China’s biggest tech companies such as Huawei and Tencent.

“Some of the Chinese tech unicorns (private companies valued at over $1 billion) received high [early-stage] demand from investors,” Ng Chee Yuen, chief executive of Singapore-based Shenning Investments, an asset manager specialising in family offices, told AsianInvestor.

He added that Hong Kong's close proximity was particularly important because under the proposed scheme, investors have to be physically present to open bank accounts or sign new contracts. 

Law from Fargo Wealth added that her company's staff size and assets under management (AUM) had rapidly grown last year, supported by China and Hong Kong-based family offices. “Our assets under management grew to $4 billion as of April, from $2.5 billion at the end of last year, 90% of which are generated from Hong Kong and mainland-based families,” she added. 

COMPETITIVE EDGE

The potential for Wealth Connect to bolster Hong Kong's credentials as a hub for family offices would be very welcome in the city, not least because of mounting efforts by Singapore to burnish its credentials as a home for regional family offices. Hong Kong has seen some of its appeal as an international financial centre fading after the anti-establishment protests of 2019 were followed in quick succession by the Covid-19 pandemic

But wealth experts argue that the two cities have unique strengths.  

“Hong Kong and Singapore have different incentives for family offices; 70% of family offices' considerations are investment-focused while the remaining 30% consider education, tax incentives and residential status,” Law said.

Kelvin Fu, Gunung Capital

“Investors find it easy to establish their presence in Singapore, which has a pro-business environment with transparent policies and efficient processes,” Ng from Shenning Investments told AsianInvestor.

Ng added that he has observed a rise in the number of investors, especially family offices coming to Singapore in the past year.

As of October last year, the numbers of Singapore-based single family offices stood at 200, managing a combined $20 billion in assets, according to the Monetary Authority of Singapore.

Gunung Capital, a single-family office based in Indonesia, is one of them. Kelvin Fu, director from the firm, told AsianInvestor the firm is setting up a new office in Singapore in the second half this year, aiming to hire up to 10 new staff over the next two years.

“We see Singapore as an important gateway for our business and it is more economically connected with our business activities in Indonesia,” Fu added. “We are mostly attracted to Singapore’s political stability and also its business, financial and currency hub advantages.”

HOW AND WHEN

Gary Ng, PwC

Market participants believe the new scheme will take a few months to roll out, but express hope it will come by the autumn.  

Gary Ng, partner at risk assurance at PwC, told AsianInvestor that, "ideally, we may see the scheme to be officially launched in the third or fourth quarter this year, depending on the timing of border reopening, regulator approvals and bank preparations.

“Initially, southbound investors may use the scheme as a diversification tool instead of looking for high yield. Going forward, easing on investment limitations such as increasing the individual investment quota [currently at Rmb1 million ($154,000)] should also drive investors’ intentions to get involved in the scheme” he said.

While it is believed that individual high net wealth individuals will initially lead the inflow, relaxation of of the maximum amount that can be invested would be likely to tempt Chinese family offices to set up new units in Hong Kong. 

Meanwhile, Ng said that given the relatively small population of Hong Kong compared with the rest of the Greater Bay Area he hopes China and Hong Kong's regulators will expand the eligibility of investors to allow residents outside the latter to use the scheme to invest in mainland wealth management products.

CROWDED MARKET

Banks have already been actively preparing for the Wealth Management Connect scheme. Stewart Aldcroft, senior advisor at Citi, believes that initially, instead of individuals, people may invest into wealth management products from a family-basis.

Citigroup announced on April 15 its plan to exit 13 global consumer banking markets, including China, while hiring up to 2,300 people in both Hong Kong and Singapore to enhance its wealth management business in these two hubs in Asia.

On March 19, JP Morgan Asset Management announced to buy a 10% stake in CMB Wealth Management, for Rmb2.7 billion ($415 million), although the deal has yet to be approved by China’s banking and insurance regulator.

In February, HSBC said it plans to hire more than 5,000 customer-facing wealth roles in the next five years to better support high net worth clients in Hong Kong, Singapore, and mainland China.

A spokeswoman told AsianInvestor that in the first quarter of this year, HSBC has hired over 600 wealth roles in Asia, including 100 client-facing wealth planners in China.

On February 22, Schroders received Chinese regulatory permission to form a majority-owned (51%) wealth management venture with a unit of Bank of Communications, the country’s fifth biggest lender.

In November last year, a wealth management joint venture between Amundi and BOC Wealth Management, is set to start up operations, according to an Amundi announcement. A spokeswoman told AsianInvestor that there is a total of 60 employees working for the JV and the unit is developing green financial products to guide investments towards sustainable investing. 

Previously, in August last year, BlackRock and Temasek received permission to take a majority stake (50.1%) in a wealth management company alongside China Construction Bank, one of China’s biggest banks.

Schroders and BlackRock declined to comment on their latest respective wealth management businesses.