In Depth: After Bruising Year, Hong Kong’s Wealth Managers Have Reasons to Be Cheerful

Hong Kong's ambition to surpass Switzerland as the world's leading cross-border wealth management center has gained recent attention. According to John Lee, the city’s leader, and Boston Consulting Group’s (BCG) Global Wealth Report 2024, Hong Kong is predicted to take the lead by 2028. This optimism stems from the city housing 2,700 single-family offices, an indicator of its growing prominence in the wealth management sector [para. 1][para. 2][para. 3]. Despite a slowdown in growth to 3.2% in cross-border wealth in 2023, attributed to reduced inflows from the Chinese mainland, strategic diversification efforts could reignite growth and buoy Hong Kong's status in the global marketplace [para. 3][para. 4].

However, Hong Kong witnessed more of its traditional wealth inflow from the Chinese mainland being drawn to Singapore in 2023, with approximately 70% of its cross-border wealth originating from the mainland. Nonetheless, BCG’s report suggests optimism by focusing on services for family offices, technological innovations, and enhanced market liquidity to regain momentum [para. 5][para. 6]. Despite challenges, Hong Kong remains a preferred offshore destination for mainland businesses. Emerging markets like the Middle East and Southeast Asia also present significant growth opportunities, which Hong Kong's wealth management sector is keen to capitalize on [para. 7][para. 8].

Interestingly, Singapore’s tightening of regulations on virtual assets and family offices due to money laundering scandals might redirect some wealth to Hong Kong, seeking less stringent scrutiny [para. 9]. Hong Kong's reputation as a wealth management hub is not accidental but rather a result of consistent policy support aimed at attracting global portfolio managers. Efforts in establishing favorable policy frameworks are evident, aligning themselves, if not surpassing, competing centers like Singapore [para. 10][para. 11]. One example of this is Hong Kong’s introduction of the open-ended fund company (OFC) structure and the limited partnership fund (LPF) structure, which have proven to be attractive to private investment funds, making the city a competitive option alongside places like the Cayman Islands [para. 12][para. 13][para. 14][para. 15].

Together, Hong Kong has successfully registered more Limited Partnership Funds (LPFs) than Singapore, despite the latter launching the structure earlier, which highlights Hong Kong’s competitive edge and appeal [para. 15][para. 16]. The city also has a significantly higher number of single-family offices compared to Singapore, further emphasizing its leadership in the sector [para. 17]. Some investors argue that Hong Kong surpasses Singapore concerning capital market depth and wealth management professionalism [para. 18][para. 19].

Opinions vary regarding future trajectories; some suggest that Hong Kong might reduce its number of family offices for quality over quantity, in the face of competition and to enhance regulations [para. 21]. Nonetheless, many in the wealth management sector view investment decisions as mutually inclusive rather than exclusive. Notably, the business operations of investment banks like UBS in both Hong Kong and Singapore are designed to be complementary, rather than interchangeable [para. 20][para. 23]. Similarly, some wealthy individuals maintain accounts in both locations, leveraging each city's unique strengths for diversified risk management [para. 24]. Thus, Hong Kong's path to becoming the preeminent wealth management hub could likely hinge on strategic enhancements and maintaining a symbiotic relationship with other global financial centers [para. 25].