A surge in the fund assets in Hong Kong’s wealth management industry last year was more than offset by a marked contraction in its fund advisory business, causing an overall drop in the territory’s fund AUM for the first time in five years, according to the annual survey* by the city's Securities and Futures Commission (SFC). 

The report, released on Friday, showed that Hong Kong's funds industry assets fell 1.6% to HK$17.39 trillion ($2.24 trillion) as of the end of 2015, compared to a year earlier (see bar graph below, all figures in HK$). This, the survey noted, was “the result of a drop in asset prices which contributed to a reduction in assets under management”, as well as some organisational adjustments by some survey respondents.

However, AUM of Hong Kong’s private banking business rose by 18% in the same period to reach HK$3.67 trillion. And private wealth managers’ AUM rose 4.3% to HK$4.78 trillion. In contrast, the asset management business of licensed corporations (excluding fund advisory) saw AUM fall 4% to HK$12.26 trillion during the year.

Meanwhile, the number of corporations licensed for asset management rose 10.1% to 1,135; the number of staff licensed for asset management rose 10.9% to 8,572, from 7,729 a year earlier; and the amount of Hong Kong-domiciled unit trusts and mutual funds grew by 10.4% to 656.

AsianInvestor has noted that Hong Kong is becoming more appealing for mainland-linked fund managers, and the survey findings supported this. There was a 15.4% rise in licensed corporations and registered institutions with links to Chinese firms during 2015. Among the 104 corporations newly licensed for asset management, 19.2% were from the mainland and 7.7% from overseas.

The statistics indicate that the city retains a lot of confidence among private wealth and trust operators, many of which seem to be benefiting from continued efforts by mainland Chinese high-net-worth individuals to bring more assets out of the mainland. That trend may well have been accelerated by a tumultuous 2015 that saw China’s equities market go through a boom-bust cycle and the renminbi being devalued.  

The biggest losses were sustained by the fund advisory businesses of licenced corporations, which saw AUM fall 21.3% to HK$1.27 trillion. The asset management business of these operators, in contrast, only fell 4% to HK$10.86 trillion. Respondents blamed “fund outflows, market volatility, lower market value of assets and organisational adjustments”, according to the survey.

Insurance companies achieved steadier performance last year. Respondents in this segment reported 3.5% growth in AUM to HK$468 billion, with normal growth in life insurance and retirement schemes slightly offset by drops in linked long-term business.

Equities appeal

Other statistics of note included the fact that overseas investors were the biggest source of capital for Hong Kong's fund management industry, accounting for 68.5% of AUM. Additionally, 55.7% of the assets held by survey respondents were managed in Hong Kong, slightly up on the 53.7% of the previous survey. 

Most types of funds saw a contraction in the number of available vehicles in 2015. The number of institutional funds slipped 4.3% from 3,421 to 3,273; SFC-authorised retail funds plummeted 14.2% from 1,806 to 1,549; and private client funds fell from 1,484 to 1,109 – a 25.3% drop (see pie chart, left).

Only the catch-all ‘other funds’ category – which covers overseas retail funds, hedge funds, private equity funds and insurance portfolios – enjoyed any growth in the quantity of vehicles, rising slightly from 4,270 to 4,292. This reflects a growing focus, particularly among institutional investors, on alternative assets such as hedge and private-market strategies.

Additionally, Hong Kong remains, first and foremost, a hub for equities investment. The survey noted that 58.4% of assets managed in the territory in 2015 were invested into equities.

*The survey was based on responses from 621 companies, of which 555 were licensed corporations, 45 were registered institutions and 21 were insurance companies.