Hong Kong recorded a 21% year-on-year increase in assets under management (AUM) to reach HK$34.9 trillion ($4.5 trillion) as of the end of 2020, according to a survey published last Thursday (July 22) by Hong Kong’s Securities and Futures Commission (SFC).

The city, which has more than 48,000 staff working for the booming industry, is seeing strong inflows despite political tensions and obstacles to economic recovery such as the Covid-19 pandemic. Net fund inflows of $2 trillion (US$262 billion) were recorded, accounting for 33% of the growth.

The numbers comprised assets managed by asset management, fund advisory, private banking and private wealth management firms, as well as SFC-authorised real estate investment trusts and assets held under trusts.

Among asset management and fund advisory businesses, public funds remained the largest segment with $9 trillion AUM, but private funds had the highest growth of 29%.

Experts believe the industry growing trend is set to continue, driven by multiple engines. 

Elisa Ng, JPM AM

"The industry as a whole experienced tremendous growth last year and we maintain a positive outlook as the world emerges from the pandemic and as economic recovery continues," said Elisa Ng, head of Hong Kong at JP Morgan Asset Management.

The AUM growth of Hong Kong capital pools reflects that global monies are satisfied with the stability of Hong Kong financial markets and the improved social atmosphere in Hong Kong, Eva Law, chairwoman of Association of Family Offices in Asia, told AsianInvestor.

Source: SFC, click for full view

ALSO READ: Assets under management in Singapore rises 17% to $3.5 trillion

WEALTH CONNECT

Amy Cho, Schroders

The Wealth Management Connect scheme in particular will offer an additional channel for investors in the Greater Bay Area to diversify their portfolios with offshore investments. Another key growth driver for Hong Kong’s fund management industry will be environmental, social and governance (ESG), mirroring the trend we have seen in Europe, Ng told AsianInvestor.

The launch of the scheme will offer a new opportunity for investors in the Greater Bay Area to invest offshore via Hong Kong, said Amy Cho, chief executive officer for Hong Kong and head of distribution for Asia Pacific at Schroders. 

"We actually expect adoption to go beyond the high-net-worth individuals, to include anyone with sufficient assets, pointing to great potential ahead of the asset management industry," she said.

Indeed, driven by the rapid increase of high-net-wealth individuals and family offices in the territory, the AUM of the private banking and private wealth management business grew 25% to HK$11.3 trillion.

Comparatively, the AUM of the asset management and fund advisory business conducted by licensed corporations and registered institutions increased 20% to HK$24 trillion.

The overall AUM growth strikes an optimistic tone for the industry that has faced fears of a brain drain and the wealthy moving their assets overseas as Beijing tightens its grip on the territory.

SHARES

Notably, non-Hong Kong investors remained a major source of funding for the asset and wealth management business, accounting for 64% of AUM, in line with the past five years range (66% in 2016 and 64% in 2019).

In 2020, Hong Kong-based investors and North American investors contributed 36% and 22% respectively to the segment, while 10% came from mainland-based buyers.

Source: SFC 2020 Survey (Click for full review)

As of December 31 last year, professional investors accounted for 72% of the asset management and fund advisory business. The AUM attributable to professional investors increased 17% year-on-year from HK$14.6 trillion to HK$17.1 trillion.

The increase was mainly due to the growing investments attributable to professional investors which were corporations, financial institutions and funds, according to the survey.

Although the dominance of professional investors stayed unchanged, the survey revealed a 30% growth from retail investors, who have been participating in the market by multiple connect schemes including Bond Connect, Stock Connect and the upcoming Greater Bay Area Wealth Connect.

ALSO READ: Greater Bay's Wealth Connect to draw family offices to Hong Kong

Source: SFC 2020 Survey (Click for full review)

While Hong Kong investors have been able to buy mainland bonds since 2017, mainland China’s onshore investors have not been able to buy bonds in Hong Kong.

However, China is planning to open southbound trading via the Bond Connect scheme in the summer, which is expected to draw Chinese pension funds and insurers looking to target ESG and green bonds in the territory.

A Hong Kong Monetary Authority spokeswoman told AsianInvestor in late April that “the framework of the southbound gate-opening is in progress and we will inform the market with updates in due course”.

ALSO READ: Bond Connect's southbound opening to favour green bonds