Hong Kong’s fund management industry saw assets surge to a record high last year, driven by inflows from global investors as well as business relocation, expansion and new entrants, according to the city's securities regulator's annual survey.
The Securities and Futures Commission findings underline the importance of Hong Kong as an international gateway to mainland China. Interestingly, while overall industry staffing levels fell last year, the shift was away from sales and marketing and into fund management and administration.
“The trend suggests that there is a shift within the talent pool toward more diversified skill-sets,” concluded the SFC survey, which received responses from 555 firms.
Hong Kong’s fund management industry – encompassing licensed corporations, registered institutions, insurance companies and Reit management business – saw 27% year-on-year growth in AUM to HK$16 trillion ($2 trillion) in 2013.
This was driven by growth in asset management business of 38.5% to HK$11.4 trillion. Within that, licensed corporations grew 28%, which the SFC attributed to the number of market participants who set up or expanded their businesses in Hong Kong to conduct asset management or fund advisory.
In all there was a 6.5% growth in the number of corporations to 950, from 892 a year ago. That had subsequently increased to 967 as of March this year.
In addition, some corporations reported they had relocated their portfolio management business from overseas to the city and recorded inflows from existing and new client mandates.
For registered institutions, the year-on-year AUM increase was 28%, driven by new capital flows and expansion. Some international banks reported a rise in services provided to private banks in 2013.
What was striking was a 42% year-on-year rise in the amount of funds sourced from overseas investors, the highest rate of increase in the past decade. It means contributions from ex-Hong Kong investors account for a new high of 72% of fund management in the city.
The SFC attributed this to strong ties with mainland China, sound infrastructure and regulatory environment and the availability of professionals, among other things.
What also becomes clear, however, is these additional assets are not being managed out of Hong Kong. Despite a 38.5% increase in asset management AUM (ex-Reits) to HK$11.4 trillion, there was just a 2.4% increase in assets managed in Hong Kong.
The level of asset management business sub-contracted to other offices/third parties overseas for management increased to 49% of AUM, from 30.8% at the end of 2012.
Of the assets managed in Hong Kong, there was a slight decline in the amount invested into Asia but a near 30% rise in the amount invested outside the region.
There were allocation increases to North America (+21%), Japan (+30%) and other regions (+300%), with decreases to Hong Kong/China (-5%), rest of Asia Pacific (-13.7%) and the UK/Europe (-9.6%).
“This suggests that Hong Kong-based managers have increasingly diversified,” the SFC noted. “Relatively more funds were invested in major overseas markets given outperformance in those markets.”
Interestingly, retail funds authorised by the SFC saw AUM decrease -1.5% to HK$1.7 trillion, while institutional funds saw a 56% increase to more than HK$3 trillion; other funds (overseas retail, hedge funds, PE funds and insurance portfolios) a 30% rise to HK$3.8 trillion; government funds a 49% rise to HK$1.8 trillion; and pension funds a 137% increase to HK$1.3 trillion.
A number of new market participants reported that the majority of their business was provided to institutional funds, overseas retail funds and some pension mandates, the SFC pointed out.
Two pages of the report were dedicated to Hong Kong’s role as an offshore RMB centre. The SFC noted there was Rmb1.05 trillion in deposits by the end of last year, as well as 39 unlisted RQFII funds authorised with an aggregate quota of Rmb42.7 billion and 16 RQFII ETFs with Rmb66 billion in average quotas.
The city has seen 30% year-on-year growth in dim-sum bond AUM to Rmb310 billion. There are 14 authorised unlisted RMB offshore dim-sum bond funds and one listed RMB offshore dim-sum bond ETF with aggregate assets of Rmb12.7 billion, up 76% from Rmb7.2 billion a year ago.
At the end of May 2014 some 82 mainland-related groups had established 222 licensed corporations or registered institutions in the city. Of these, 28 (up from 25 a year ago) managed 194 SFC-authorised funds (up from 161), with an aggregate net asset value of HK$135.7 billion.
Further, the amount of mainland assets managed in Hong Kong sourced from qualified domestic institutional investors (QDIIs) recorded year-on-year growth of 40% to stand at HK$112 billion.
About 50% of these QDII assets were invested in Hong Kong and 11% in other parts of Asia Pacific, while the remaining 39% was invested in North America, Europe and other regions.
In terms of fund advisory, new and existing players reported 11.6% growth in AUM to HK$1.7 trillion, with many noting they had relocated to Hong Kong or expanded due to new flows and mandates.
Also, the total number of staff engaged in fund management fell 1.1% to 31,834. That was led by a 5.3% decline in sales and marketing, as against a 10.6% increase in fund administration, a 22.5% rise in asset management, an 11% increase in research/analysis and an 11.8% rise in dealing/trading.