Hong Kong’s funds industry posted a 5.2% rise in assets under management to HK$18.3 trillion ($2.34 trilion) last year, driven largely by flows into bond products, with alternative strategies also recording a huge jump in demand.

The figures came from the Fund Management Activities Survey released today by Hong Kong’s Securities and Futures Commission (SFC).

Of the total HK$7.027 trillion in assets managed in Hong Kong, bond fund AUM accounted for HK$1.883 trillion, a rise of nearly half (43%) over 2015.

‘Alternatives/derivatives’ assets more than doubled (rising 145%) to HK$397 billion, while cash and money market AUM halved (-52.7%) to HK$439 billion.

The rise in flows into alternatives and bonds on the back of investors’ growing demand for yield, said the SFC. It reflects a marked increase in appetite for private-market investments in Asia in the past couple of years.

Equity funds remained by far the biggest proportion of the total, despite falling by 4.3% over the year.

Meanwhile, added the report, private wealth management business grew 9% to HK$5.023 trillion, rising as a proportion of the HK$18.3 trillion total the back of expanding Asian wealth.

Domicile demand

Hong Kong is gaining popularity as a funds domicile and a place for firms to locate investment businesses, noted the regulator.

The number and the net asset value of Hong Kong-domiciled SFC-authorised funds rose by 12% and 11.9%, respectively, year-on-year as of March 31, 2017.

The number of corporations licensed for asset management in Hong Kong rose by 16.9% to 1,348 as at March 31. The number of licensed corporations and registered institutions set up by mainland China-related groups in the city increased by 15.9% to 313 over the same period.

The SFC said new initiatives such as Stock Connect and mutual recognition of funds (MRF) had contributed to attracting business. These new fund platforms have encouraged global and Chinese firms to operate their core Asian asset management activities in Hong Kong, added the regulator.

The growth in the city’s funds industry this year followed a rare contraction in 2015, when AUM shrank by -1.6% in 2015. Prior to that it had shown robust growth, of 10.5% in 2014 and 27% in 2013.

Singapore’s asset management industry saw similar growth of 7% last year to S$2.7 trillion ($1.96 trillion), said the Monetary Authority of Singapore’s 2016-2017 annual report in early July. It also recorded decent (17%) expansion in alternatives AUM.

Asset management and fund advisory business by fund type

Source: SFC