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In response to Hong Kong’s declining status as an international financial center, expanding family offices (where the wealthy set up private companies to manage investments) has become one of the Hong Kong government’s key performance indicators (KPIs).
With no Chinese border clearance in sight, Hong Kong officials opted to find their investors in the Middle East. In the current political climate, the financial industry is only going to get more challenging, according to senior hedge fund managers.
The Hong Kong government’s recently released policy address mentioned that the government will take measures to attract talents and enterprises. It also noted in the report that a bill would be introduced during the year to provide tax exemptions for eligible family offices.
In order to launch at least 200 family-owned businesses and establish or expand their development in Hong Kong by the end of 2025, the Hong Kong government and officials have identified the move as one of the top KPIs.
According to previous reports, InvestHK will send staff to Abu Dhabi and Dubai to promote the development of family offices in Hong Kong.
Invest Hong Kong was established Hong Kong Family Office June 2021. As planned, the team will travel to London and Zurich in November to continue the promotion after visiting the Middle East.
Singapore Stay one step ahead in your family office business
Compared to Singapore, Hong Kong is two years behind its rivals in family office strategy.
The Monetary Authority of Singapore (MAS) and Economic Development Board established the Family Office Division in March 2019 to enhance Singapore’s position as a global wealth management and family office hub.
From 2017 to 2019, the number of family offices in Singapore jumped fourfold, according to data published by MA
As of 2020, nearly 400 single-family offices, with assets of US$100 million each, are based in Singapore. In 2018, there were only 27 single-family offices.
Bloomberg estimates that by the end of 2021, the number of registered family offices in Singapore will increase to 700, based on the MAs offer.
Bridgewater Capital founder Ray Dalio and Google co-founder Sergey Brin are some of the names in Singapore’s wealthy Western family offices. Recent reports suggest that Asia’s second-richest man, Mukesh Ambani, is also opening a store in Singapore.
National security laws and dynamic zeroing are bad for business
Although developing a family office is not an absolute indicator of the success of a financial center, being overtaken by competitors in such a short period of time is a microcosm of Hong Kong’s declining international financial status.
latest ranking Global Financial Centres Index (GFCI) proves that Hong Kong has dropped to fourth place in its global ranking. Meanwhile, Singapore overtook Hong Kong to third place and was almost neck and neck with New York and London.
Qian Zhijian, a well-known senior hedge fund manager, said that before the epidemic, funds had left Hong Kong. “Hong Kong’s status as a financial center has declined for two reasons: 80% is affected by the National Security Law, while strict COVID-19 precautions have been reduced by 20%.”
Chin further argues that this is a consequence of the government’s banning of a Hong Kong-listed company on various charges within a year of NSL. “How do you attract international investors to Hong Kong when the government accuses the major shareholders and executives of listed companies of violating so-called national security?”
While many countries have decided to live with the COVID-19 virus, Hong Kong has still chosen to follow a dynamic zero-sum limit on gatherings of up to 12 people.
Chen believes that pretending that “Hong Kong is back to normal” could have negative effects.
Immigrants can also make money
The global billionaires report released by multinational investment consultancy Henley & Partners shows that the international migration of the rich is driving capital outflows, with Singapore, the Middle East and Australia emerging as monopoly winners.
The report also estimates that by 2022, 15,000 millionaires will leave Russia permanently, while 10,000 will leave China. On the other hand, Hong Kong is also expected to lose 3,000 of its wealthiest households.
Many wealthy people use Singapore and the UAE as ideal destinations for immigration.
The report predicts that close to 4,000 of the world’s richest people will enter the UAE, followed by around 3,500 into Australia and 2,800 into Singapore.
With the migration of the rich, Hong Kong, which once followed Tokyo and was once the second richest city in the Asia-Pacific region, has now been surpassed by Singapore and others.
The latest Billionaires Report from Henley & Partners ranks the super-rich based on those who can afford at least $100 million in investable funds.
Only 280 billionaires remain in Hong Kong, compared with 336 in Singapore.
According to the website of China Construction Bank, the family office is a top service with a high investment threshold, and the personal or investable family assets are not less than 100 million US dollars.
It also noted that as family businesses become more specialized in the US or Europe, $25 million is the minimum investment threshold for a single family and $10 million is the minimum investment threshold for a multi-family office.
In its 2019 Hong Kong Private Wealth Management Report, KPMG, a private wealth consultancy, pointed out that “in the next five years, assets rooted and managed in[China]will account for nearly half of the private wealth management market.”[China}mainlandwillaccountfornearlyhalfoftheprivatewealthmanagementmarket”[中国}大陆的资产将占私人财富管理市场的近一半。”[China}mainlandwillaccountfornearlyhalfoftheprivatewealthmanagementmarket”
The 2021 report also highlights that the COVID-19 pandemic has had the most significant impact on Hong Kong’s private wealth management business.
In recent years, the Beijing government has adhered to a dynamic zero policy, isolating itself from the outside world. The Hong Kong business community has been urging the government to reopen the border with China, while the market waits for Chinese money to head south. The end of dynamic zero becomes the most critical issue.
Alicia G. Herrero, chief Asia economist at Natixis, told The Epoch Times that in terms of capital outflows, she thinks Beijing is reluctant to reopen China next year. “This is a huge risk for the Chinese government because their biggest concern is what will happen once people leave the country.”
Judging from the presentation of China’s balance of payments, there was a net outflow of $45.2 billion from errors and omissions. Herrero told Reuters that the phenomenon reflects the unofficial flow of residents’ funds.
“Not only have foreign asset management companies stopped investing in China, but undocumented capital outflows have also been exacerbated by shaken confidence. Mainland Chinese residents want to withdraw money.”
In the 2022 Hong Kong Private Wealth Management Report, the number one driver of industry growth will depend on further penetration into the mainland market and the attractiveness of Hong Kong to younger generation investors and family offices.
Hong Kong government makes money overseas
Senior investment adviser Mike said the global situation presented Singapore with a once-in-a-lifetime opportunity. However, it won’t last indefinitely. “Furthermore, compared to Hong Kong, the capacity of the Singapore market still lags far behind its traditional financial market position.”
Mike continued: “Hong Kong officials go to the Middle East first, because a lot of rich people are in the Middle East. In terms of geopolitics and decoupling between China and the United States, it will be relatively safe in some Middle Eastern countries. The Russian-Ukrainian war has also pushed Russian assets to the Middle East.
Senior hedge fund manager Edward Chin’s view worries that in Hong Kong’s current and future political environment, this will only become more of an obstacle for the financial industry. “Just because your money stays in China doesn’t mean it’s your money. It’s probably the same in Hong Kong.”
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