The new era of wealth management in Hong Kong

The wealth landscape in Hong Kong is undergoing a unique period of transformation. A new generation of investors – with their own particular needs and priorities – are seeking a different approach from their wealth managers, explains AlTi’s Joshua Green.

Wealth management in Hong Kong is in the midst of a major change. It is not simply that there are more wealthy individuals and families – though that is certainly the case – but also that their profile is changing. As assets pass from one generation to the next, the support and advice required is shifting, and while the needs of first-generation clients cannot be overlooked, their younger counterparts inevitably have different interests, ambitions, and priorities.

The expansion in Hong Kong is remarkable: Knight Frank projects that the number of ultra-high-net-worth individuals (UHNWI) will grow by 25.7% between 2020 and 2025, and it puts Hong Kong fifth in its City Wealth Index, ahead of every Asian city other than Tokyo¹.

Hong Kong-based asset and wealth management businesses’ total assets under management (AUM) stood at HK$30.54 trillion at the end of 2022, according to the Securities and Futures Commission (SFC)², representing growth of 143% over the previous 10 years. New players continue to enter the market, says the SFC, with a 5% increase last year alone in the number of firms licensed to carry out asset management activities; the industry now employs almost 55,000 people.

The ongoing wealth creation in Mainland China, including in the Guangdong-Hong Kong-Macao Greater Bay Area (GBA), continues to be a major source of growth for the industry, as Hong Kong remains its key wealth management center. Hong Kong’s unique position, including its physical and cultural links, its well-established international financial market, the US dollar-linked exchange rate, and the free flow of capital, means that the city is well placed to remain the first choice for wealth management for Mainland China. Indeed, recent Chinese policies, such as the 14th Five Year Plan and the Outline Development Plan for the GBA, specifically state Hong Kong’s role as the international wealth management center for China and the GBA.

In addition to the growth from Mainland China, many wealth management firms in Hong Kong expect to see more fund inflows and AUM sourced from the Middle East and South East Asia in the future, widening Hong Kong’s investor base. In a recent KPMG survey, 85% of wealth management firms said they expected AUM to expand at a rate of at least 6% a year over the next five years³.

New wealth, new needs

However, it would be a mistake for wealth management firms in Hong Kong to assume that they will automatically benefit from this growth. While there will be more clients who need advice and support, the changing nature of the market means that simply doing more of the same will not be enough. A different type of client will want – and need – a different approach from their advisers.

Most notably, we are beginning to see a remarkable transfer of wealth from generation to generation in Asia, as the first-generation wealth creators take action to ensure that wealth remains within the family and that the businesses they have built can sustain and endure. As this generation grows older, succession planning and legacy challenges are becoming an increasing focus.

While first-generation clients are very hands-on and want to control their investments, the younger generations are more hands-off and seek discretionary solutions. They are more focused on asset allocation, with a core and satellite approach. To understand and serve these clients, Asian wealth management firms will have to modify their services and become more like their US and European counterparts, offering discretionary portfolio-management solutions, tax and estate planning, and M&A advice.

There is also growing interest among the younger generation to invest in private equity, commodities, and other real asset⁴. Wealth managers need to have relevant competencies in order to support clients in these areas.

Younger, tech-savvy clients⁵ may be more interested in privately listed businesses, particularly startups and scaleups focused on tech and the innovation economy. The startup space in Hong Kong is expanding at a record pace, with 72% of business founders in the region identifying themselves as local investors⁶. An ecosystem of investment in these businesses is developing rapidly, with a natural crossover between local entrepreneurs and younger investors, who will often be keen to work with one another.

Helping clients make considered investments in these private companies will therefore be important. Those wealth managers who have traditionally specialized in conventional asset classes – particularly listed equities, fixed-income, and property – will need to expand their horizons.

Another important shift is the development of environmental, social, and governance (ESG) issues in an investment context. Research by Deloitte suggests that younger people in the Asia region are far more focused on these issues than their parents.⁷ Another study found that for investors younger than 34, environmental and social concerns are now a key driver of capital allocation and the top priority in their investment decisions⁸.

With services largely focused on the older generation, wealth managers in Hong Kong are typically allocating less than 10% of clients’ portfolios to ESG strategies and investments⁹. But this figure is expected to rise in the coming years, with many firms stating that offering more sustainable investment advice and related products is a top area of focus.

A related point is that younger investors are particularly likely to place importance on transparency and openness in their dealings with wealth managers. This rising generation worldwide, research¹⁰ suggests, are determined to understand exactly what services they are paying for. Also, their focus on ESG and impact has prompted them to scrutinize portfolios at a more granular level.

Time for a new approach

Against this backdrop, wealth management in Asia must evolve, because the relatively narrow focus to date will no longer be fit for purpose.

Recent government initiatives in Hong Kong are encouraging increased competition and new entrants to the market. For example, new legislation offers a range of incentives to family offices opening in Hong Kong¹¹, including introducing a 0% tax rate on profits for UHNWIs and their family members on qualifying transactions.

To succeed, both new entrants and established players alike will need to shift to a new model built on personalized service and complete transparency. In addition to broadening their offering, wealth managers will be expected to provide advice that is more holistic and client-aligned. 

At AlTi, we work closely with our clients to identify and meet their needs, and optimize performance using our unique access and bespoke solutions and strategies built around each client’s individual circumstances.

To deliver that level of service requires experience, expertise, and scale. We are global, independent, and have the size and sophistication to base our strategies on our own analysis rather than the consensus view. We have in-house research capabilities, with none of the biases and complex structures often seen in large banks. And our investment solutions span a multitude of asset classes, including private equity and co-investments.

It is our view that this truly collaborative approach is what the wealth management industry in Hong Kong now needs. The future is bright, and the next generation will require a new level of specialist support to fully benefit from an increasingly wide range of opportunities.