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APB Deep Dive: Inside Hong Kong’s grand plan for family offices

2023 was the year in which the Hong Kong government ramped up the dial on promoting family offices in the city. But why now?

Outside the industry, the prosaic concept of families setting up private offices to manage their own wealth was suddenly thrust into the limelight – not only as a key selling point for Hong Kong as an international financial city – but also as part of a much larger effort by the government to redefine the city to the world after years of Covid restrictions and political turmoil. It also comes after rival Singapore has ramped up its own efforts to attract rich families – many of them from China.

Asian Private Banker spoke to those with inside know-how, from private banks, consultancies, government bodies, and of course, family offices, to investigate how this trend is playing out in the city.

More than a numbers game

There is more to the question of, “Which region is better for family offices, Hong Kong or Singapore?”, than just the total number of family offices. However, if it were a numbers game, Singapore would win.

Singapore has become the most preferred destination for establishing family offices in recent years. The city-state has already seen 1,100 family offices established, according to Singapore’s Economic Development Board data.

There is no official data on the number of family offices in Hong Kong, but it is thought to be much lower. The Hong Kong government’s target for 2025 is to attract 200 large families.

Edith Ang, HSBC

“The number of family offices is but one way to measure the growth of the industry,” Edith Ang, APAC head of family advisory, HSBC Global Private Banking (GPB), reminded Asian Private Banker in a recent interview.

Ang added that there is much more to the question. For instance, are the right families being attracted? Are existing ones being disadvantaged? Are family offices thriving and growing in the long term? And is the local economy able to benefit?

“Families do not just set up a family office for a year, but across multiple years and even generations,” she said.

The veteran family wealth planner added that Hong Kong and Singapore started from very different positions, particularly in relation to formulating and refining their respective policies. Rather than pitting the two against one another, families would do better to understand which jurisdiction – or both – best fits their long-term goals, she said.

“It is not a zero-sum game,” Chi Man Kwan, Raffles family office founder and CEO, noted.

“It’s important to recognise that many of our clients have established a local presence in both Hong Kong and Singapore. That said, it’s also important to understand that the decision-making process for families and businesses when selecting a geographical location for their family office is not limited to a binary choice between the two regions,” said Kwan.

Despite not releasing data on the number of family offices in Hong Kong, data showing the total assets managed for family offices by wealth and private banks give a clue as to the size of the industry, and the figures are still quite significant.

Source: Hong Kong SFC

UBS, Credit Suisse 2022 Global Wealth Report

The private banking and private wealth management industry had nearly US$1.1 trillion of AUM (HK$8.97 trillion) in 2022. Of that, 17%, or US$195 billion, was managed for family offices and private trusts, according to the Hong Kong Securities and Futures Commission’s Asset and Wealth Management Activities Survey 2022. This data omits direct private investments made by family offices.

Hong Kong is also home to the second-largest number of billionaires globally, according to the Wealth-X Billionaire Census 2023. In fact, UBS’s latest global wealth report, jointly published with Credit Suisse, also highlighted how Hong Kong has the highest number of wealthy individuals in Asia Pacific, and is ranked 3rd globally, behind Switzerland and the US.

Policy support

The Hong Kong government really began accelerating its support for family offices in March 2023, when it proposed a new development scheme for family offices. As part of this effort, it cut profits tax for eligible single-family offices in May.

“The passage of the Hong Kong family office tax regime bill adds a spotlight and offers tax clarity. And the widespread press coverage definitely piqued their interest,” Ang noted.

The eight measures announced in March were:

  • A new Capital Investment Entrant Scheme (CIES)
  • Offering tax concessions
  • Market facilitation measures
  • The Hong Kong Academy for Wealth Legacy
  • Art storage facilities at the airport
  • Promoting Hong Kong as a philanthropic centre
  • The dedicated FamilyOfficeHK team in InvestHK
  • A new network of family office service providers

Given the scheme’s flexibility in ownership arrangements, Ang added that it definitely encouraged more families to re-evaluate their family office setup and their arrangements for wealth transfer to the next generation.

In addition, Hong Kong boasts that many taxes applied in cities such as London, for instance capital gains tax or VAT, are not applied in Hong Kong.

Source: InvestHK

“This multi-pronged approach ranges from the establishment of the Hong Kong Academy for Wealth Legacy to art storage facilities, a one-stop shop for inquiries on family offices, etc. There’s also ongoing work on regulations to make it easier for single-family offices in the long run, and for families to base some elements of their legacy in Hong Kong,” Ang added.

“Hello Hong Kong” 

What makes the family office agenda unique to Hong Kong is the way in which it ties into the government’s long-term plans. For the city’s authorities, promoting the family office space is part and parcel of pushing the “Hello Hong Kong” brand and “telling good stories” of the region.

This may explain the more recent enthusiasm and vigour when compared to Singapore, whose own journey into the space started much earlier. However, at the same time, silence from the Hong Kong government in previous years may also be due to the fact that wealthy families want to remain discreet.

“Due to the want to be low-profile – of these big family offices – they would not like to be disclosed or exposed in the past. So, Hong Kong has never been the propagation centre for them. And it made it sound to the public that we have been quiet,” explained Jason Fong, global head of Family Office Hong Kong (Family Office HK).

Fong’s employer, Family Office HK, is the unit under the Hong Kong government that is dedicated to promoting the city as a family office hub.

Jason Fong, FamilyOffice HK

“There is a lot we should learn from Singapore, they have done a marvellous job in terms of promotion. They’re very good at that, and they are very together at that. But we’re picking up very fast […] We need to get out and be vocal to promote Hong Kong.”

More importantly, the Hong Kong government is following the successful footsteps of Singapore in making sure all government departments, such as the Immigration Department, the Financial Service and Treasury Bureau and the Inland Revenue Department, collaborate to bring a one-stop-shop to cater to family offices.

Fong highlighted that in the past few years, the government has been conducting studies, and taking advice from the industry, end-clients or stakeholders, which led to the formulation of the eight policies in March.

In addition, the “Wealth For Good” summit, held by the government just two months after the city reopened earlier this year, was designed specifically to push the concept of family offices in Hong Kong. The summit invited 132 of the largest family offices in the world, including the Bill Gates Foundation, many Hong Kong tycoon families, and  significant families from Thailand, Australia, Europe and the US.

In the same week in March, Hong Kong hosted Art Basel, the Rugby Sevens tournament and an inaugural WEB 3.0 festival. The entire week was really for the world to feel the energy in Hong Kong, said Fong.

Hong Kong chief executive John Lee speaking at Wealth For Good Summit

The summit led to client enquiries about setting up family offices in Hong Kong. Fong shared that around 55% of the enquiries came from China, 25% from Southeast Asia, and 20% from Australia, Europe, the UK and America.

Digital assets

Kwan noted that Hong Kong’s virtual asset exchange licence is a game changer for the city’s virtual asset ecosystem, as it allows both retail and professional investors to trade digital assets, which in turn attracts the interest of family offices.

Chi Man Kwan, Raffles

Raffles Family Office last year launched the Revo Digital Family Office allowing its UHNW families and next-gen families to tap into digital assets.

“We are seeing family offices take an increased interest in digital assets and exploring how to obtain exposure to this asset class,” highlighted Paul Moloney, corporate & securities partner at Mayer Brown.

This increasing interest is almost certainly correlated with the support shown by the Hong Kong government and various regulatory authorities for developing Hong Kong as a digital asset trading hub,” he said.

Moloney added that the regulatory support primarily provides reassurance to investors. For instance, the licencing of virtual asset service providers shows counterparties are subject to regulatory scrutiny, and that they accordingly have robust systems and controls in place with a particular emphasis on cybersecurity and safekeeping of assets.

Middle East target

The Hong Kong government is also eyeing opportunities in the Middle East and has made field trips to the region this year to promote the city as a financial and family office hub.

“Our outreach to the Middle East has been very positive. The Middle East is a new market to us, and we are very lucky that we have some strong market practitioners who are very supportive of us,” Fong said. He added that Hong Kong is trying to build a bridge to the Middle East, to bring the government, enterprises, corporations and families together to exchange ideas.

For HSBC’s Ang, there are interesting opportunities for a two-way corridor with the Middle East, given cities such as Dubai have their own family office schemes.

“It would be beneficial if there were closer government-to-government dialogues to create frameworks and policies that encourage two-way access, where families could take advantage of the different opportunities in both regions for instance,” said Ang.

Family office Tsangs Group was among the first in Hong Kong to expand its family office to Dubai last year.

Private bank participation

The family office space in Greater China is a relatively young ‘sunrise’ industry, the Tsing Hua University China Family Office Report 2022 noted. For instance, two-thirds of the family offices interviewed for the report were established after 2013, and 90% of them were established after 2010.

Time of Greater China family establishment of family office – Source: China Family Office Report 2022

For families in China, it is more important to focus on managing their corporate assets than their financial assets, according to Kitty Liu, head of global family office, vice chairman of the family office strategy and management committee at CICC, one of the largest investment banks in China.

Kitty Liu, CICC

“It has only been 45 years since China has reformed and opened up. The enterprises, on the other hand, only experienced 10 to 20 years of growth, [which is] a relatively short wealth accumulation cycle for them. They want long-term development, but they do not have strong cash flow,” she said.

This compares starkly with some European families, which are already in the 10th generation of wealth, with significant cash power to pass on their legacy. Chinese families, on the other, focus more on equity allocation, growth and income generation, Liu said.

A key service for global banks, such as HSBC, working with mainland clients is to advise families on how to formalise their legacy strategy and structure.

“For the sophisticated business families with established family offices, we partner them through our Ultra High Net Worth Solutions Group, a platform that allows institutional-level access to our global markets and investment banking services,” Ang said.

In recent years, more private banks have put a focus on building a global family office unit that provides the one-bank strategy to their family office clients, such as UBS’s Global Family and Institutional Wealth (GFIW), Citi Private Bank’s Family Office Group (FOG) or J.P. Morgan Private Bank’s 23 Wall.

While momentum is building at this stage, it is still too early to tell if the recent developments are a flash in the pan, or building to something much larger. For Family Office HK’s Fong, they are only just getting started.

“Our government has in mind very long-term development goals for family office, and this (Wealth For Good) is not a one-off event. We will have the next family office event in 2024. We are already in the planning stage of that,” said Fong, adding that next year’s summit will be even bigger.

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