Appetite for diversification to underpin HK progress
Hong Kong recently introduced regulatory reforms, policies and incentives to drive growth and increase Hong Kong’s attractiveness as a fund domicile. The newly adopted Limited Partnership Fund Ordinance (LPF) bill allows Hong Kong’s private equity firms to launch limited partnership funds. Already, there are signs that firms are taking advantage of the market to innovate.
As China’s asset management and broader financial services industry continue to grow and attract interest, there is an opportunity for managers in Hong Kong to reap the benefits of the growing wealth on the mainland. Richard Chou (pictured), Vice President of Business Development APAC for SS&C Advent, sees a significant uptake of requests for limited partnerships among clients.
“Hong Kong will be able to take advantage of the growing wealth in both Hong Kong itself and China,” comments Chou. “Because of this, more and more products and funds will be required to service the ever-increasing wealth in Asia.”
Managers are broadening their fund portfolios following the adoption of LPF. Many are planning to launch several funds from a single umbrella structure. “A lot of our managers are using umbrella structures intending to spin out multiple funds. This positive development means the manager is not just relying on one fund. Managers are then able to provide investors with a variety of choices of funds,” says Chou.
In 2018, Hong Kong’s Securities and Futures Commission provided the option for open-ended investment funds to be structured in a corporate manner rather than as unit trusts. The regime aims to enhance market infrastructure to support the jurisdiction’s growth as an international finance centre.
Global asset allocation and domestic investment will drive Chinese managers to set up in Hong Kong. “Most Chinese managers would choose Hong Kong as their offshore headquarters because it is one of the world’s financial centres and part of China. Historically, they could only select the Cayman or BVI structure as there were no laws or regulations for the managers to manage onshore assets in Hong Kong,“ Chou notes.
Setting up a private equity fund in Hong Kong can be more cost-effective for Chinese managers and bolster confidence for their investors. “They would feel much more comfortable wiring money to a Hong Kong cash account with the fund also registered onshore,” Chou says.
To succeed, Chou believes Chinese asset managers should understand the local regulation and how to manage an overseas entity based on overseas rules and policies.
Chou says the outlook for Hong Kong funds is very positive: “There are 10,000 managers in China, and many of them will want to set up in Hong Kong to diversify their assets, AUM and investor base. In addition, the industry has become a lot more professional in the last 20 years. Hong Kong offers a wide choice of hedge funds and private equity funds for investors to choose from.”
Richard Chou, Vice President of Business Development, SS&C Advent
Richard is responsible for the business development of SS&C Advent for the Greater China market where SS&C Advent is re-positioning itself in the emerging wealth management market with its award winning Advent Global Wealth Solution. Richard has 20 years global product development experience in SS&C Advent’s solutions for the wealth management and asset management markets – Advent Investment Suite. Prior to joining SS&C Advent in 2000, he worked in enterprise resource planning systems for Bradley Company (Xerox Corp.) in Cleveland Ohio.