Hong Kong's potential as a wealth management hub can be further boosted by reforms to encourage growth of organisations such as family offices, a study says.

Tax exemptions for offshore funds and non-resident high net worth individuals should be widened to boost Hong Kong’s family offices, increasing the $1 trillion of assets under management that private wealth firms oversee in the Asian jurisdiction, a study argues.

A white paper by the Private Wealth Management Association and KPMG China, part of KPMG, recommends 13 measures to boost the sector. In 2017, the industry and its associated supply chain contributed between HK$24.6 billion ($3.2 billion) to HK$30.0 billion in value added. 

The industry wants its $1.0 trillion AuM figure to double over the next five years, as previously stated in an earlier report by PWMA and KPMG China which focused on a talent shortage problem that such growth will cause.

“The PWM industry in Hong Kong has a window of opportunity to benefit from several macro opportunities, but it will need to move fast in the face of keen competition from other wealth management hubs. Implementing the recommendations set out in the white paper would be a big step forward, but will require concerted effort,” Paul McSheaffrey, Head of Banking and Capital Markets, Hong Kong, KPMG, said. 

For family offices, the report suggests five steps, including setting up an investment office liaison centre to help promote Hong Kong and guide family offices through the set-up process there. Another idea is to promote family offices by expanding the Offshore Funds Exemption or the introduction of a new exemption.

With rival Asian hub Singapore already a strong centre for wealth management and private banking, and with family offices seen as a young market in Asia with big potential, Hong Kong is trying to capture a slice of this business.

Another proposal in the paper, entitled Hong Kong: A Leading Global Wealth Management Hub of the Future, is to introduce a concessionary tax rate for fund management and advisory. The paper also wants to modify the tax treatment of Hong Kong trusts to encourage their use as an investment holding option for HNWIs and family offices.

Greater Bay Area 
On another front, the study wants to see a new cross-border scheme, tilted at wealth managers, to ensure that the Greater Bay Area becomes a “single wealth zone”. This could happen in three stages: the first stage would allow for onshore solicitation and marketing for PWM institutions based in Hong Kong (and vice versa); following this a second stage would see freer cross-border fund transfers whilst maintaining sufficient controls; and finally in stage three the scheme could be further widened/deepened to other areas in mainland China.

Turning to talent management - a key issue amid concerns about skill shortages - the paper suggested that the industry should develop a flagship taught postgraduate degree to position Hong Kong as a hub for PWM learning and innovation.

The publisher of this news service issued a report earlier this year about portfolio management issues in Singapore (see here) and has also examined the rise of external asset managers in the region (see here.)