Singapore and Hong Kong, two of the most sophisticated financial centres in Asia, have extended their long-running rivalry into wealth management. Both cities have taken various initiatives to lure high-net-worth individuals (HNWIs) and strengthen their status as the region’s wealth management hubs.
Singapore has introduced the Variable Capital Companies (VCC) structure, while Hong Kong has rolled out the Limited Partnership Fund Ordinance and the Open-ended Fund Companies regime.
Most of the assets in the two cities come from overseas sources. Southeast Asian HNWIs tend to prefer Singapore as their destination for onshore wealth, while Hong Kong plays an important role as a gateway to China’s wealth, according to the latest edition of Cerulli Associates’ The Cerulli Edge.
The research and consulting firm believes asset managers in both hubs can reach out to family offices through private banks or directly through their institutional teams. Besides pitching fund products to private banks, managers can explore establishing sub-advisory partnerships with private banks aiming to launch their own range of investment strategies for their clients.
One of Singapore’s key attractions for wealthy individuals is its low taxes, although the government has recently hinted that this could be reviewed. Experts have warned such a move could significantly undermine the country’s status as a wealth management hub.
There are about 200 single-family offices (SFOs) in the city state, managing about US$20 billion in total assets. Google co-founder Sergey Brin, US billionaire and hedge fund giant Ray Dalio, and Shu Ping, founder of hot pot chain Haidilao, are among the ultra-rich individuals that have set up family-office branches in Singapore.
Tax benefits and low costs offered under Singapore’s VCC structure, rolled out in January 2020, also appeal to family offices, especially with the currently available grant schemes, Cerulli says. More than 260 VCCs have been established as of end-April 2021. But despite the appeal of the VCC structure due to the grant schemes, the requirement that they be managed by permissible fund managers still poses a challenge for SFOs.
To further entice more SFOs to set up VCCs, since most of them do not have the requisite asset management licences to do so, the Monetary Authority of Singapore is planning to revise the framework by relaxing guidelines around permissible fund managers.
Hong Kong, on the other hand, is Asia’s leading city in terms of ultra-HNWI density, with one such individual for every 787 residents. The Chinese territory has implemented several policies to enhance its wealth hub status, including the Limited Partnership Fund Ordinance introduced in August 2020, Cerulli says.
This is a major development in sharpening Hong Kong’s competitive edge in asset and wealth management as the report says limited partnership is a business format favoured by family offices. According to media reports, about 260 limited partnership funds have been set up, and around 50 licensed family offices are now operating in the territory.
In May this year, the Securities and Futures Commission (SFC) launched a grant scheme providing subsidies to cover 70% of the expenses paid to local professional service providers for setting up or redomiciling Open-ended Fund Companies (OFC). SFC figures show that 14 firms – including family offices and wealth managers – have used the OFC structure, as of end-July 2021, three years after the regime took effect. Cerulli understands that private funds and family offices are more likely to utilize the OFC structure, compared to global managers that are already distributing their offshore funds in the market.
Hong Kong’s fund industry appears to be performing well. As of end-2020, assets under management reached HK$34.9 trillion (US$4.5 trillion), up 21% year-on-year, according to the SFC.
Notwithstanding talk of an exodus of talent and international companies, global asset managers Cerulli spoke with were upbeat about their Hong Kong operations. The city remains a gateway to tapping Chinese wealth, and offers diversity in terms of private equity funds and startups.
This was underscored with the introduction of the Wealth Management Connect (WMC) pilot scheme in the Guangdong-Hong Kong-Macao Greater Bay Area (GBA) in February 2021. The scheme will enable residents in GBA cities to invest in wealth management products distributed by banks in the area.