Back To The Future: AIMA Sets Out Blueprint For Hong Kong To Retain Its Status As A Leading Global Financial Centre

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Hong Kong’s strengths have positioned the city well to capture the exponential growth of alternative investments in the region, but challenges remain

Hong Kong To Retain Its Status As A Leading Global Financial Centre

The Alternative Investment Management Association (AIMA), in collaboration with PwC Hong Kong, has issued a new report that sets out AIMA’s vision for Hong Kong to retain its status as a leading global financial centre, including prospects for its alternative investment sector.

The Alternatives in Hong Kong – Building on the city’s strengths report provides an overview of the many opportunities that Hong Kong can offer the financial services industry, including a range of areas where the territory can grow over the short, medium, and long term.

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Despite the challenges facing the city, AIMA, as the global representative of the alternative investment industry, encourages continued dialogue between policymakers, regulators, asset managers, investors, and service providers to support the long-term growth of the alternative investment sector in Hong Kong. All stakeholders need to work together to secure Hong Kong’s future as a leading global financial centre, the report argues.

To this end, the report expounds upon six pillars it identifies as critical to the continued growth of Hong Kong’s alternative investment sector: Rule of law; Tax system; Regulatory environment; Talent pool; Capital markets; and Proximity to Mainland China.

The alternative investment industry has experienced outstanding growth in Hong Kong. The city manages the lion’s share of alternative assets within Asia Pacific, with more than 740 alternative asset managers having established offices there. The city is also home to more than half of the major hedge funds located in Asia Pacific. However, Hong Kong lags the New York metropolitan area2 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, PwC Hong Kong. “Between 2009 and 2020, billionaire wealth in Mainland China grew twelve-fold. By comparison, billionaire wealth in the US and UK grew less than three times. This significant shift in global wealth is not yet reflected in the growth of Hong Kong’s alternative investments sector.”

“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,” says Phillip Meyer, Chair, Executive Committee Hong Kong, AIMA.

Hong Kong is unquestionably facing some of its biggest challenges to date. Some of these challenges are pandemic induced and represent major issues that Hong Kong is slowly but surely working its way through. However, against increasing competition and global challenges, including the pandemic, more must be done to maintain the city’s competitive advantages to build an even brighter and more resilient future.

Looking beyond the pandemic, the report argues that Hong Kong needs to 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. Policymakers, regulators and market participants need to work together to support the growth of the sector, to make alternatives more accessible and to strengthen Hong Kong’s position as a hub for alternative asset managers and investors in Asia Pacific and globally.

“Notwithstanding the challenges of the Covid pandemic, maintaining Hong Kong’s position as a global financial centre is imperative. 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,” says Michael Bugel, Managing Director, Co-Head of APAC, AIMA.

You can download the report here.

The Six Pillars:

  1. Rule of Law: A majority of fund managers consulted identified this as the most important reason they chose to establish or locate in Hong Kong.
  2. Tax system: Hong Kong has been proactive in implementing tax policies to attract and retain alternative investment activities. Policymakers should continue this approach and further their working relationships with market participants.
  3. Regulatory environment: Hong Kong’s attractiveness as an international financial centre is due in large part to an independent, transparent, and effective regulatory framework and regulatory bodies.
  4. Talent pool: Hong Kong faces significant competition in attracting and retaining skilled and diverse talent. The city needs to ensure an agile environment, where financial services professionals can move freely between Hong Kong, Mainland China, and the rest of the world.
  5. Capital markets: Measures to enhance the depth and sophistication of Hong Kong’s capital markets play an important role in supporting the alternatives sector, by increasing the availability of related funds, infrastructure, talent, and expertise.
  6. Proximity to Mainland China: Hong Kong has a range of opportunities to capitalise on its proximity to Mainland China, while maintaining its unique attributes as an international financial centre. The Greater Bay Area, and the associated Wealth Management Connect initiative, are prime examples.

About AIMA

AIMA is the global representative of the alternative investment industry, with around 2,100 corporate members in over 60 countries. AIMA’s fund manager members collectively manage more than US$2.5 trillion in hedge fund and private credit assets.