Hong Kong may be ground zero for renminbi-denominated products and the springboard for mainland China fund managers, but that privileged status hasn’t boosted the asset-management industry.
The annual survey of fund-management activity by the territory's Securities and Futures Commission, looking at the industry as of end-2011, finds the territory’s asset base shrinking even as the number of managers active onshore – particularly salespeople – is rising.
The combined fund-management business of licensed corporations (ie, fund managers), registered institutions and insurance companies shows the territory recorded a one-year -10.4% decline in assets under management, from HK$10 trillion to just over HK$9 trillion.
That follows two years of rising AUM in Hong Kong, and the decline dips the city’s business below the HK$9.6 trillion of 2007 – though it is well ahead of the horrible year of 2008, when industry values dropped to HK$5.8 trillion.
Meanwhile, the number of licensed corporations and individuals licensed for asset management grew, by 5.5% and 12.8%, respectively. By the end of last year, there were 842 corporations and 6,184 individuals involved in the business, with even more registering in the first four months of 2012.
The SFC reports that 76% of people in the industry – or 23,441 individuals – are sales and marketing, a 4.8% increase from 2010. So literally there are more people engaged in asset gathering even as those assets have declined.
Not all parts of the industry suffered equally, however. While asset-management business recorded a year-on-year decrease of 15.8% in total AUM to HK$5.8 trillion, and fund advisory business declined by 3.1% to HK$889 billion, private-banking business grew by 1.5% to HK$2.2 trillion.
Similarly, insurance firms registered a 10.4% increase in their AUM to HK$287 billion, while authorised corporations and registered institutions witnessed declines.
Exchange-traded funds also fared better. The Hong Kong ETF market saw the number of listed products rise from 69 to 77 (with 27 listings and 12 ETFs de-listed), with total market value rising 9.9% to $97.4 billion.
Another bright spot is that more of the money under management in Hong Kong is actually managed onshore. Last year, only 60.8% of non-real estate investment trust (Reit) AUM was managed in Hong Kong, but that figure rose to 66.8%, or HK$3.8 trillion. AUM sub-advised or delegated to other offices declined.
The focus for much of Hong Kong’s asset-management industry is servicing mainland Chinese clients, or serving as a launch-pad for Chinese asset managers.
However, although Hong Kong remains by far the leading portal between China and the world, the amount of mainland assets managed in Hong Kong fell by 19.5% in 2011, to HK$62 billion.
Much of the growth in new players licensed in Hong Kong is due to Chinese securities companies, fund managers, securities companies and insurers.
In total, mainland companies accounted for HK$265 billion of non-Reit funds business in Hong Kong. Thanks to a pair of successful products launched in late 2010, this total grew last year by 13.1%, but otherwise the sector recorded a general decline in AUM.
Mainland entities are expected to play a bigger role in future, as Beijing expands its RQFII and QFII schemes, supports more renminbi bond issuance, and boosts support for mainland overseas portfolio investments.
If more money is being managed by local professionals, and China accounts for a growing portion of business, the role of Hong Kong remains regional. The amount of Hong Kong-based assets invested in the SAR itself is small, and mostly unchanged, at 22% of AUM. However, while the rest of Asia accounts for nearly 78% of investments, mainland China accounts for a large share of that.
The upshot of the data is that Hong Kong remains a magnet for fund sales and marketing, both from China and from around the world, but local investment professionals remain comparatively few. This has meant more products, people and firms competing to manage assets from the territory, but not necessarily an increase in local expertise in managing portfolios.
Hong Kong has not been immune to turmoil in the eurozone or the lousy performance of China A-shares – so the outcome, in the short term, is more mouths fighting over a shrinking pie.
Over the longer term, the SFC believes greater integration with the mainland and the introduction of new products will boost the industry’s fortunes. But perhaps what Hong Kong really needs is more people who are good at managing portfolios across different strategies and asset classes, rather than more people flogging yesterday's hot product.