Mainland China opportunities, growth-seeking regulatory reforms and ESG investing are key drivers for Hong Kong asset managers in 2021, KPMG finds

Mainland China opportunities, growth-seeking....

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Hong Kong’s asset management industry has shown resilience over the past year despite the continuing impact of the COVID-19 pandemic, and is strongly positioned for growth in 2021 due to the Greater Bay Area (GBA) opportunities, policy support, and the city’s strategic regional location and role, according to KPMG analysis.

The Hong Kong Asset Management Outlook: Key trends for 2021 report identifies key trends that are likely to have a significant impact on the industry in Hong Kong in 2021, including the continued opening up of mainland China’s asset management sector and broader financial services industry to foreign investment; regulatory reforms and incentives enacted in 2020 that are expected to encourage local market growth and increase Hong Kong’s attractiveness as a fund domicile; and the integration of ESG into investment processes.

Andrew Weir, Global Head of Asset Management and Vice-Chairman of KPMG China, says: “Hong Kong’s asset management industry is set for another strong year in 2021. Asset managers that take affirmative action in 2021 to capitalise on emerging trends will be able to capitalise on growth and superior performance. The industry will continue to be supported by policymakers that remain committed to encouraging growth and reaffirming Hong Kong’s status as a premier international financial centre and asset and wealth management hub.”

The report notes that mainland China will remain a strategic growth opportunity for Hong Kong’s asset managers in 2021. As China recovers more rapidly from the pandemic than other developed nations, mainland Chinese equities and bonds may become a growing component of portfolios, and major indices will likely increase their allocation to mainland China, potentially benefiting Hong Kong’s asset managers.

Within China, the GBA, with a population of 71 million and a combined GDP of USD1.6 trillion, also presents a more specific, wealth-oriented opportunity for asset managers. Bonn Liu, Partner, Head of Asset Management, ASPAC, KPMG China, says: “The GBA’s special status will be enhanced with the imminent launch of the GBA Wealth Management Connect scheme, which will allow residents of the cities in the GBA to invest in eligible investment products distributed by banks in Hong Kong and Macao, and vice versa. We expect the scheme to evolve and expand over time, enlarging the overall size of the funds market.”

In Hong Kong, a number of regulatory reforms and tax incentives have been introduced in the past two years in order to encourage local market growth and cement the city’s position as Asia’s premier asset and wealth management hub.

The FY2021 Hong Kong Budget announced on February 24 highlighted a number of new measures, including plans to inject a further HKD9.5 billion into the Innovation and Technology Fund. Darren Bowdern, Partner, Head of Alternative Investments, Hong Kong, KPMG China, says: “Additionally, providing a subsidy of up to HKD1 million to managers setting up an Open-ended Fund Company (OFC) in Hong Kong, or even re-domiciling an offshore fund to Hong Kong under that regime, is a fantastic initiative that should significantly boost the appeal of using Hong Kong as the choice location for raising capital going forward. A similar subsidy will apply to the set-up of qualifying REITs in Hong Kong, but with an increased cap of HKD8 million per REIT.  In my view, this will be a small cost to the government in order to generate much larger returns from the economic activity and substance that will be established in Hong Kong from managing Hong Kong based OFCs and qualifying REITs.”

Additional measures that were previously announced in 2020 include the introduction of the Limited Partnership Fund (LPF) regime, amendments to the existing OFC regime and proposed reforms to provide competitive tax treatment for Carried Interest.

Vivian Chui, Partner, Head of Securities & Asset Management, Hong Kong, KPMG China, says: “The Hong Kong Government and regulators are expected to continue to focus on further tax and regulatory reforms in 2021 and going forwards. These reforms reflect a broader global trend to bring operations and investment structures onshore, which we expect to continue throughout the year. Asset managers looking to raise capital in Asia have more alternatives for fund vehicles than ever before, and Hong Kong ought to be a major beneficiary.”

In addition from an ESG perspective, as the major asset owners in China and the broader Asia Pacific region follow the global trend and increasingly incorporate ESG factors into their manager selection and portfolio management process, institutional asset managers will need to start measuring the ESG dimensions of their investment portfolios, perform in-depth ESG analytics, aggregate ESG ratings and information, and provide ESG assurance.

Pat Woo, Partner, Head of Sustainable Finance, Hong Kong, KPMG China, concludes: “Those that are quick to take decisive steps in 2021 towards full ESG integration will be well positioned to enjoy a short-term competitive advantage – not only with institutions, but increasingly with retail investors as increasing amounts of assets are in the hands of more purpose-driven Millennial investors.”

Looking ahead, 2021 is therefore likely to see many asset managers continue to evolve their operating models and focus on the application of advanced technologies to their core processes. ESG specialists, data scientists and domain-centric technology experts will continue to be in high demand in 2021, as will professionals who have a comprehensive understanding of the China market.

 

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About KPMG China

KPMG member firms and their affiliates operating in mainland China, Hong Kong SAR and Macau SAR are collectively referred to as “KPMG China.” KPMG China is based in 27 offices across 25 cities with around 12,000 partners and staff in Beijing, Changsha, Chengdu, Chongqing, Foshan, Fuzhou, Guangzhou, Haikou, Hangzhou, Hefei, Jinan, Nanjing, Ningbo, Qingdao, Shanghai, Shenyang, Shenzhen, Suzhou, Tianjin, Wuhan, Xiamen, Xi’an, Zhengzhou, Hong Kong SAR and Macau SAR. Working collaboratively across all these offices, KPMG China can deploy experienced professionals efficiently, wherever our clients are located.

KPMG is a global organisation of independent professional services firms providing Audit, Tax and Advisory services. We operate in 146 countries and territories and in FY20 had close to 227,000 people working in member firms around the world. Each KPMG firm is a legally distinct and separate entity and describes itself as such. KPMG International Limited is a private English company limited by guarantee. KPMG International Limited and its related entities do not provide services to clients.

In 1992, KPMG became the first international accounting network to be granted a joint venture licence in mainland China. KPMG was also the first among the Big Four in mainland China to convert from a joint venture to a special general partnership, as of 1 August 2012. Additionally, the Hong Kong firm can trace its origins to 1945. This early commitment to this market, together with an unwavering focus on quality, has been the foundation for accumulated industry experience, and is reflected in KPMG’s appointment for multidisciplinary services (including audit, tax and advisory) by some of China’s most prestigious companies.

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