A prominent figure in the Asia-Pacific executive search industry spent a week immersing himself in Hong Kong's private banking, family offices and wealth sector. He unearths a number of trends – including a few that might be surprising.

The following article is from Danny Jones, chief executive of executive search firm Huddleston Jones and a member of this news service’s editorial board. The editors are pleased to share these insights from an experienced figure and, of course, the usual editorial disclaimers apply. To respond, please email tom.burroughes@wealthbriefing.com

As I conclude my meeting notes from my recent trip to Hong Kong over the past week, I have several key takeaways and observations. I engaged in a series of client meetings with prominent industry chief executives, market leaders and established private bankers. Our discussions covered various topics: from the challenges posed by higher interest rates and economic headwinds in China to the complex task of acquiring talent in the market environment.

Being based in Singapore, my visits to Hong Kong have been infrequent in recent years, mainly caused by Covid-19 travel curbs. Returning to the “Skyscraper City” was not only good for gaining insights but also gave me a firsthand chance to understand the hurdles that industry leaders in the private sector had to surmount. 

Prevailing sentiment favours keeping close to clients, upholding value and avoiding distractions. For 2024, private clients are expected to go through a significant amount of investment diversification, whether by wider geographical dispersion, by reducing certain risks, or through exploring particular asset classes.

The years of 2022 and 2023 placed demands on private clients, particularly as a result of the impact on markets from the Chinese economy. Volatile stock markets put a high priority on protecting client portfolios, making it necessary to examine counter-party risk and interest rate risk closely. 

There have been positive developments despite the difficulties, such as a rise in net income deposit growth in private banks, driven by rising interest rates. However, transactional revenue has dropped as clients have opted to hold cash. The geopolitical situation in China, which added to a domestic economic slowdown, has concerned private clients. This shows the need for careful guidance and support.

Chinese investors have increasingly focused on private market assets during this market volatility. Judging by insights from prominent CEOs, private market exposure is likely to rise, covering private equity, debt and credit. Liquidity concerns persist, and Chinese investors prefer semi-liquid private market investments. 

As for navigating geopolitical concerns and higher rates in 2024, experts suggest that structured solutions, and asset allocation are important. Portfolio diversification is key, particularly in the context of significant deleveraging in Asia. Other crucial areas are ESG/green finance, and family estate planning amid continued large wealth transfer.

Structures
One Asia-Pacific CEO at a large US bank expects to see a focus on structured products, flow products, gold hedging, foreign exchange and commodities in 2024 – along with an improvement in the Asia bond market amid rate cuts. With a fall in initial public offerings in Hong Kong, there is pressure on dividends and a notable slowing in capital creation among Chinese clients. Clients are holding cash reserves and await a market turnaround.

Concerns surrounding succession planning continue to be noticeable in North Asia, covering wealth and business transition. A CEO at a Hong Kong private bank revealed that 60 per cent of first-generation ultra-high net worth clients in China fall within the age of 50 to 65. Succession planning is therefore important and makes it a significant industry trend. 

Getting impatient
One key takeaway is that there’s impatience for Chinese stimulus measures: urgent action is needed to address sluggish growth. Policy execution and implementation is crucial for restoring confidence, particularly in the mainland real estate sector.

Even so, the sector is still, despite concerns, considered “investible,” due to low market valuations. Talks between leaders such as US President Biden, and China’s President Xi, are seen as critical for progress. Added topics that I came across include rising mainland China unemployment, the need for government policies to tackle debt, and the potential improvement in IPO markets. 

Family offices are a prominent topic. Hong Kong is seen as gaining momentum over Singapore. Talent acquisition remains a challenge, particularly because of Singapore’s high cost of living.

Returning to Hong Kong
I was struck this week by a gradual return of Chinese bankers to Hong Kong from Singapore. Bankers think Hong Kong’s closer proximity to mainland China and the expanding capabilities in family office solutions are causes for this shift as they position Hong Kong to be a preferred destination for top-notch Chinese RMs. The candidate market in Hong Kong is vibrant; there are fewer apparent challenges in compensation demands compared with the situation among their Southeast Asian counterparts.

Professionals in the banking sector have commended the Hong Kong Monetary Authority and Private Wealth Management Association for their unwavering support for the family office initiative in Hong Kong, which has proven successful. Notably, growth of this sector is not exclusively attributed to China, as Hong Kong is also gaining attention from international families seeking North Asia exposure.

Several CEOs saw higher inflows through their Hong Kong family office programmes compared with the situation in Singapore this year. They attribute this in part to the expeditious account opening processes that HKMA facilities. Unlike Singapore, where AML and KYC processes can take months, Hong Kong’s channel is more streamlined for clients. This has led to growth in net new assets in Hong Kong booking centres, and ahead of Singapore in 2023.

Movements
During the past 12 months, a remarkable number of team movements in Hong Kong, with HSBC Private Bank, Standard Chartered, BNP Paribas, Bank of Singapore, and Julius Baer making significant hires in the recent transfer window. Financial institutions that stress a stronger one-bank capability remain a focus, and several Tier-1 banks achieved net growth of 6 to 10 per cent for front-office teams this year. China-centric moves have been prominent. UBS and Credit Suisse have been big contributors to team movements in Hong Kong.

Digital
Digital transformation and the imperative to innovate in private banking were important topics throughout the week. Rising administrative burdens have long affected profitability, making it a priority to address delivery shortfalls. Many banks are embracing machine learning and tools such as chatbots to address account opening procedures, for example. Innovation labs are changing the client-firm interfaces. 

As AI progresses, it will automate tasks, turning private banking into a tech-focused sector.

While the human touch is crucial, given the sheer complexity of investing for today’s UHNW clients, it is vital to simplify tasks and improve efficiency where possible through digital means.

Overall, the week left me optimistic about the chances of interest rates lowering – at some point – to support the region’s debt and equity markets. The fundamental challenge of moving cash into investments remains, and acquiring talent is a pressing need for CEOs who must also achieve their digital policy goals into 2024.