The Family Office industry is in the midst of a global boom, and Asia is leading the surge. In the two years through 2019, the number of family offices established in the Asia-Pacific region grew 44%, faster than any other region in the world.
This boom is partly a consequence of rising wealth, and the eastward migration of global prosperity. It’s also the result of the changing nature of the industry and the growing complexity of wealth management.
Traditionally, the concept of the family office was rooted primarily in the idea of wealth and legacy protection. While that remains a cornerstone of the business, wealth expansion is also an emerging priority. In a low-interest, low-yield world, this has accelerated a widening of the family-office investment universe beyond traditional asset classes into such areas as private equity, venture capital, ESG investments and even cryptocurrency. As investments grow more intricate and high-net-worth families become increasingly globalized, expertise is in greater demand.
Not only is family wealth becoming more diverse and geographically dispersed, family offices are also operating in an economic environment of rising volatility. As a result, there is a growing need for security and stability in a traditionally under-regulated sector. The fact that one-third of family offices suffered losses through cyberattacks in 2017, while almost half had no plan to secure their wealth against attack, for example, highlights this vulnerability.
As demand for private wealth management services grows, and Asia becomes a focal point for that demand, Hong Kong is emerging as the natural hub for the family office industry.
“The main drivers of growth in family offices in the world, especially in Asia, are from two sources,” says Christopher Hui, Secretary for Financial Services and the Treasury. “First, entrepreneurs from China have quickly risen to become the world’s second largest billionaire group. A family office is the most effective structure for any ultra-high net worth family that wants to preserve and transfer wealth for the family over the longer term. In addition to the phenomenal wealth generation, the rapid growth of Asia’s family office segment has been driven by succession planning needs. Family offices are ideal vehicles for those looking at how best to preserve their wealth for generations to come.”
The Natural Choice
Hong Kong has spent decades at the top of global rankings for economic openness.
About 80 of the world’s 100 largest banks and 70 of the top 100 money managers have an established presence in a city where the free flow of capital, information and people are enshrined in law. They have been drawn to Hong Kong not just by its reputation as a vibrant and dynamic financial market but also by its simple low-tax regime, comprehensive network of double-taxation agreements, robust regulatory controls and a long history of monetary stability.
Hong Kong is now Asia’s largest cross-border private wealth-management hub (and the second-largest globally). The maturity and sophistication of Hong Kong’s financial industry has created a deep well of expertise for the burgeoning family-office sector to draw on. About 263,000 people are employed by Hong Kong’s financial sector – close to 7% of the entire workforce.
“Hong Kong’s Fintech ecosystem is also vibrant with a rapid growth of start-ups and fast adoption of new technologies by incumbent financial institutions,” Hui says. “Family offices can adopt new Fintech applications to track and manage potential risks across their portfolio of investments.”
Adding to that appeal is Hong Kong’s growing connectivity with Mainland China and the city’s geographic location within the booming Greater Bay Area, one of the most prosperous regions in China and home to one in five of the country’s high-net-worth families.
“Hong Kong boasts its world-class infrastructure, rule of law, robust financial regulatory regime and an international financial hub with sophisticated connectivity with the world and the Greater China market,” says Hui. “We are home to a diverse talent pool and conversant business professionals equipped with the skills and knowledge to drive business in the city and beyond. As a top international financial centre and wealth management centre, setting up a company in Hong Kong is easy, quick and inexpensive. Hong Kong does not tax capital gains, dividend income or offshore profits.”
A Welcoming Environment
While Hong Kong’s status as one of the world’s premier financial centers is well-established, recent developments have further enhanced its position as a hub for family offices and intermediary services.
Early in 2020, the city’s Securities & Futures Commission updated its licensing requirements on family offices to provide more clarity for operators.
In November 2020, the Family Office Association of Hong Kong was established to foster the development of the industry, with the strong support of the government. This was buttressed by new legislation designed to create a more attractive operating environment for family offices. For example, updates to the tax regime provide for a profits tax exemption on the sale of securities for privately offered funds in Hong Kong, while the Limited Partnership Fund Ordinance 2020 creates a stronger and more flexible legal environment for private capital.
To simplify the environment even further, InvestHK has established a dedicated family-office support team to provide one-stop services for the industry.
“The new team is set up under Invest Hong Kong, our investment promotion agent that offers one-stop support services to Mainland and overseas family offices interested in establishing a presence here,” Hui says. “The objectives are to position Hong Kong as a leading family office hub in Asia, facilitate Mainland and overseas investors setting up family offices, and supporting family offices already established in Hong Kong.”
The checklist for establishing family office or related services in Hong Kong is refreshingly short: choose a business type and company name, incorporate your company, register your business. The new specialist team can guide businesses through every step of the process, from licensing and tax matters, to immigration and visas, to bank accounts and even housing and schools.
“Money will settle where wealth is created,” Hui adds. “That is what Hong Kong is. Hong Kong being the international financial city of China, offers a reliable platform for these billionaires to manage their mega-wealth around the world. This means tremendous business opportunities for asset and wealth management companies in Hong Kong in terms of wealth management turnovers and employment in related financial or professional sectors”
Article provided by InvestH and published by bloomberg: