Is Hong Kong ready for a new generation of family office?
The city’s wealth management industry needs to keep up with the demands of this evolving market segment
Hong Kong is stepping up its push to attract more single family offices, with a promise of new incentives in the 2024 budget.[1] This follows the expansion of tax benefits and other initiatives put in place since 2023 to encourage more wealth owners to manage their money in the city.
The wealth management industry also needs to do its part. If Hong Kong is to attract more family offices – and their wealthy beneficial owners – the city’s wealth managers must also develop new skills and strengthen their offering to meet the needs of this evolving sector.
Family offices today often behave more like sophisticated institutional investors rather than high-net-worth individuals, and expect service providers to treat them accordingly. The challenge for Hong Kong’s wealth management industry, then, is to leverage on the city’s world-class capabilities as an international financial centre to meet the distinct needs of a new group of clients.
An evolving opportunity
The growth of family offices has emerged as a defining trend in wealth management in recent years, driven by the growing concentration of wealth and a growing appreciation of the benefits of professional support. According to Capgemini, 33% of ultra high-net-worth individuals use family offices to manage their wealth.[2]
In Asia, the rapid pace of wealth creation means the family office segment is still an emerging opportunity. Figures from Singapore demonstrate the rate of growth: the number of family offices in Singapore jumped from around 400 in 2020 to 1,100 by the end of 2022.[3] This, though, is still only scratching the surface. There were over 150,000 individuals with assets of at least USD30 million in Asia in 2022. [4]
The role of the family office is also changing. Modern family offices do much more than simply process their beneficial owners’ instructions. Many wealth owners now expect their family offices to be involved in strategic discussions around asset allocation, succession planning and wealth preservation.
This means Asia’s single family offices now bear a much closer resemblance to institutional asset owners with long-term views, mandates focusing on environmental, social and governance (“ESG”) considerations, and formal governance structures.
To support family offices, the wealth management industry needs to apply an approach similar to that used for servicing institutional asset owners. This could mean deepening portfolio analytics to deliver strategic advice on asset allocation, generating more complex trade ideas or overlaying impact metrics to monitor performance against sustainability objectives.
We have certainly seen a growing interest in more sophisticated products from family offices, such as collateralised loan obligations and bespoke hedging solutions. Discretionary mandates have a role to play, too, as more wealth owners devolve investment decisions to professional managers.
Wealth managers also need the capability to advise on the integration of sustainability and ESG considerations across multiple asset classes. Just like their larger institutional cousins, family offices see a need for a careful and considered approach, not only to avoid greenwashing risks or to ensure return requirements are met but also to safeguard alignment with the family’s values.
Beyond wealth management
Family offices, of course, also fulfil a range of non-financial services that are less relevant to institutional asset owners. As stewards of a family legacy, they are often involved in philanthropic activities, wealth planning and the steps needed to ensure a smooth transition to the next generation.
This multi-generational approach requires a different skillset to traditional wealth management or institutional investment. It is about thinking beyond investments and supporting a wide range of objectives tied to succession planning or complex family dynamics.
Keeping up with this dynamic market is not just a challenge for Hong Kong: it is also an opportunity.
Catering to the needs of modern family offices will also enhance Hong Kong’s position as a wealth management hub and bolster its reputation as an international financial centre. The city is now well placed to attract more wealth management business – especially from families with an interest in Greater China. In a regional context, levelling the playing field with Singapore also gives wealthy families a choice between the two financial hubs.
The ingredients for success are already in place. Hong Kong has created a robust and competitive regulatory environment, and there is strong support from the government. Aside from the roll-out of tax exemptions for single family offices, the new Capital Investment Entrant Scheme, which makes it easier for high-net-worth individuals to take up residency in Hong Kong, opened for applications on 1 March 2024. [5]
Initiatives to attract international talent and develop local skillsets, such as the Hong Kong Academy for Wealth Legacy, are also welcome. The second edition of the Wealth for Good in Hong Kong Summit is an example of efforts being taken to promote information-sharing across the ecosystem.
The city can also draw on its rich expertise in managing institutional and personal wealth. Hong Kong managed approximately USD3.9 trillion of total assets as of the end of 2022, with USD1.15 trillion of that in private banking and private wealth management.[6] It is a sophisticated financial hub, with world-class infrastructure and easy access to a full range of local and international investment opportunities, notably through the Connect schemes with the mainland Chinese markets.
Hong Kong’s government is right to recognise that deepening the family office ecosystem will bring additional benefits for the city’s financial sector. But we must also recognise the need for new advisory capabilities and investment services to support a new breed of family wealth managers. That is a worthy goal for the city’s wealth management sector.
[1] https://www.budget.gov.hk/2024/eng/budget16.html
[2] https://prod.ucwe.capgemini.com/wp-content/uploads/2022/12/Top-Trends-Wealth-Management-Report_2023.pdf
[3] https://www.bloomberg.com/news/articles/2023-07-05/singapore-to-change-family-office-tax-rules-for-local-boost
[4]https://www.fstb.gov.hk/en/blog/blog141123.htm#:~:text=According%20to%20industry%20estimates%2C%20there,high%2Dnet%2Dworth%20population.
[5] https://www.info.gov.hk/gia/general/202403/01/P2024022900797.htm?fontSize=1
[6] https://www.fstb.gov.hk/en/blog/blog141123.htm