How Hong Kong can retain its status as leading financial hub

If Hong Kong is to maintain its financial hub status, it must leverage its strengths and opportunities, including in alternative investments, reports PwC

Hong Kong is widely seen as the third-most-important city for global finance and business, after New York and London, and ahead of Shanghai and Singapore.

And despite recent challenges, and a subsequent exodus of top financial talent, the city has managed to hold onto its third-place ranking globally in the latest study (Global Financial Centres Index) of the world’s leading international financial centres.

A Hong Kong Government spokesman attributed this to the city’s “robust and effective regulatory regime, a well-established institutional framework for systemic risk monitoring and well-functional Linked Exchange Rate System”.

Hong Kong is facing difficult challenges

But for how long? Hong Kong is unquestionably facing some of its biggest challenges to date. Some of these challenges are pandemic induced, with the government introducing restrictive measures to combat the spread. These measures have weighed on the city’s economy including an exodus of expats, many from the city’s leading financial institutions.

This has led to a talent crunch in the city and is impacting Hong Kong’s standing as the leading financial hub in Asia-Pacific, as Singapore – APAC’s second leading financial city – reaps the benefits, welcoming the many financial leaders leaving Hong Kong to Singapore.

Michael Bugel, Co-Head of APAC for The Alternative Management Association (AIMA) argues in a new report – a collaboration between AIMA and PwC Hong Kong – that maintaining Hong Kong’s position as a global financial centre is now “imperative” and that the city has the strengths and opportunity to do so.

If Hong Kong is to maintain its competitive advantages and build an even brighter and more resilient future, it must leverage its unique position as a bridge to both global markets and Mainland China, as well as its other strengths, such as transparent regulation, deep capital markets, judicial independence, and simple taxation. 

“Now is the time for all stakeholders with skin in the game to collaborate on how to strengthen Hong Kong’s strategic blueprint in order to attract – and retain – alternative asset managers to ensure Hong Kong continues to be a leading international financial centre in Asia,” adds Phillip Meyer, Chair, Executive Committee Hong Kong, AIMA.

Alternative Investment industry opportunities

AIMA and PwC Hong Kong believe one of the main opportunities for maintaining and improving its position as a leading financial hub is in the alternative investment sector, a sector where the city is currently lagging to other major financial hubs.

According to a new report from PwC Hong Kong and AIMA, which sets out a vision for Hong Kong to retain its financial hub crown, the alternative investment industry has experienced outstanding growth in Hong Kong and offers an opportunity for major growth.

The city manages the lion’s share of alternative assets within APAC, with 740 alternative asset managers having established offices there; and is also home to more than half of the major hedge funds located in APAC. However, Hong Kong lags the New York metropolitan area and London in terms of assets under management (AUM)

“While Hong Kong is comfortably in third position, its total AUM has much more room to grow given the increase in wealth in China and the region,” says Lisa Tsui, Partner, Asset and Wealth Management at PwC Hong Kong.

There has been a significant shift to Asia in global wealth in recent years. Billionaire wealth in Mainland China grew twelve-fold between 2009 and 2020, while in the US and the UK, it grew less than three times. But despite this shift in wealth, it is “not yet reflected in the growth of Hong Kong’s alternative investments sector”, says Tsui.

This clearly shows the opportunities there are for growth of the sector but will mean a collaborative effort. Policymakers, regulators, and market participants need to work together to support the growth of the sector, to make alternatives accessible and to strengthen Hong Kong’s position as a hub for alternative asset managers and investors in APAC and globally.

This paper can act as a roadmap for all relevant stakeholders, asset managers, investors and policymakers to build on the success of Hong Kong’s past for an even brighter future,” concludes Bugel.

PwC and AIMA report – Alternatives in Hong Kong

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