Illustration by Sara Seneviratne

THIS July, Hong Kong’s private wealth management industry recorded a 14% increase in assets under management (AUM) compared to a year ago. Hong Kong’s wealth management professionals believe that the growth is primarily driven by mainland China’s growing wealth, according to a recent report.

The estimated total private wealth in terms of AUM in Hong Kong is over US$800 billion as of July 2017, according to a survey by Private Wealth Management Association (PWMA) and PwC. This is an increase of 14% from US$700 billion in July 2016. PWMA’s annual members survey was produced with PwC in July 2017, with 33 out of 45 PWMA member firms participated.

In the survey, 100% of respondents cited mainland China as the main driver of growth in Hong Kong's private wealth AUM. This may be unsurprising, as China has become home to the highest number of billionaires in the world. According to Hurun Report in 2016, China now has 568 billionaires, surpassing the 535 billionaires in the US, and now ranks first globally.

Hong Kong ranks above Beijing when it comes to number of billionaires, but mainland China wealth growing.

The country’s growth potential is also promising. China will become one of the largest regions for high net worth individuals in the world, with the number of high net worth families rising from 2.07 million in 2015 to a predicted 3.88 million by the end of 2020, according to a report released by Industrial Bank Co Ltd and The Boston Consulting Group.

However, the Chinese market still has its challenges. China’s capital controls have slowed the growth of wealthy people’s overseas investments, says Wendy Tsang, managing director and head of private banking at Bank of China Hong Kong. Further, market access is restricted in mainland China, and there are difficulties applying for some banking licenses, according to some PWMA member firms.

According to Antoinette Hoon, private banking advisory service partner at PwC HK, there are three major challenges for the Hong Kong private wealth management market: regulatory compliance, talent management, and microeconomic environment.

Yet, disruption from digital innovations is not considered a challenge, according to the survey. Eight-five percent of PWMA member firms surveyed think fintech solutions will introduce more opportunities rather than threats to the industry.

The survey further suggests that private wealth managers in Hong Kong are moving towards digital offerings. Fintech has become increasingly essential as wealth is transferred to the next generation, and as there are a growing number of younger self-made Chinese billionaires.

This month, the Chinese Internet giant Tencent Holdings agreed to buy an almost 5% stake in China’s leading investment bank, China International Capital Corp (CICC), creating a partnership between the country’s tech and finance majors.

This is a trend that PWMA has observed. “A lot of banks have been looking at certificated partnerships with technology partners,” says Amy Lo, chairman of PWMA. “But at the same time, I do not think that digital offerings will totally replace the classical model that we are in. At the end of the day, wealth management is very much a people kind of business.”