Hong Kong's role as a fund management hub was cemented in 2003 with management, advisory and private banking activities totalling HK$2.9 trillion ($378 billion), a steep rise over the past three years, which have been flat. In 2001 and 2002, the industry managed HK$1.6 trillion, and in 2000 it managed $1.4 trillion.
Last year's inflows reflect the strong performance of Asian - particularly North Asian - markets relative to Europe and North America. Hong Kong attracted HK$1.86 trillion, or 63% of the funds business, from overseas investors. Another HK$1.19 trillion of assets was managed in Hong Kong, of which 73% was invested in Asia, about half of that in China and Hong Kong. The SFC credited this to the local industry's in-house expertise.
Pension funds registered the largest year-on-year increase, growing AUM by 56%, from HK$238 billion in 2002 to HK$371 billion in 2003. Non-SFC authorized funds grew nearly as quickly, from HK$214 billion to HK$316 billion, while MPF funds rose from HK$64 billion to HK$95 billion. But the single biggest type of fund remains institutional money, which reached HK$907 billion in 2003.
The business of giving advice on funds or portfolios also enjoyed healthy gains last year, rising from HK$144 billion to HK$209 billion of assets. For assets advised in Hong Kong this represented a 62% gain, and for assets advised overseas, 38%. Meanwhile, private banking activities amounted to HK$488 billion last year.
All of this activity resulted in jobs growth, primarily in sales and marketing, which accounts for 81% of the 15,195 people engaged in fund management activities. Another 7% are involved in fund administration and only 5% in asset management and research. Overall the industry added 3,763 jobs, a 31% rise from 2002. The SFC says that the gain was entirely derived from sales and marketing positions, which it believes reflects firms' taking advantage of strong financial markets to grow their AUM and client base, as well as for increasing competition to gain funds from Hong Kong investors.
A final tidbit: internet activities remain rare. Only five licensed corporations conduct certain activities electronically: two provide dealing facilities for SFC-authorized retail funds, and other services include fund prices, offering documents and portfolio reports. Six registered institutions say they provide subscription, redemption or switching facilities for SFC-authorized retail funds through the internet, or provided online tools such as performance calculations.
The SFC's role in growing the market in 2003 involved promoting real estate investment trusts (Reits), exchange-traded funds (ETFs) and retail hedge funds. Reits and retail hedge funds have failed to take off and the SFC promised to consult the industry with amendments for Reits and ETFs, which it acknowledges need work.
"The SFC appreciates the importance of diversification into overseas properties for the longer-term development of Reits," the SFC says. It has set up a taskforce to devise a set of benchmarks for overseas investments, and will consult the public when the results are in.
The SFC also says: "As a result of the experience gained in the process of authorizing the hedge funds, the SFC will review the hedge fund guidelines in the current financial year, with an aim to further facilitate the development of hedge funds in Hong Kong."
Despite the gains achieved industry-wide in 2003, the regulators must see that other centres such as Singapore have also done well, particularly in attracting hedge-fund start-ups. The SFC made no mention of the taxation issues plaguing the local hedge fund industry. Although the past year has been very good, the SFC can't rest on its laurels. The June/July edition of AsianInvestor magazine explores the problem of start-ups fleeing to Singapore in more depth. To the SFC's credit, it appears to recognize the situation.