Net inflows into Hong Kong’s asset management business slow to 10% growth: SFC survey

The growth rate of net inflows into Hong Kong’s asset management and fund advisory business has slowed down significantly, dropping from a 40% year-on-year growth in 2020 to only 10% in 2021, according to the latest survey of Hong Kong’s Securities and Futures Commission (SFC).

The survey released on Wednesday (July 20) showed that the city’s asset management and fund advisory business recorded net fund inflows of HK$1.5 trillion ($191.1 billion) by end-2021, representing a 10% year-on-year increase.

In 2020, the annual growth rate was 40%, as the city saw net inflows growing from HK$987 billion in 2019 to HK$1.38 trillion in 2020.

As a result, the annual growth rate of total assets under management (AUM) of Hong Kong’s asset management and fund advisory business also slowed down to 8% year-on-year, with the AUM of HK$25.9 trillion ($3.3 trillion) as of the end of 2021.

This is a reduced growth rate compared to the 20% in 2020, when the AUM increased to HK$24 trillion in 2020 from HK$20 trillion in 2019.

Source: SFC (as of end-2021)

By client type, assets managed by individual professional investors dropped by 35% from HK$1.2 trillion ($152.9 billion) in 2020 to HK$770 billion ($98 billion) by the end of 2021.

As a result, the proportion of AUM in Hong Kong’s asset management industry attributed to professional individual investors went down to 3% in 2021 from 5% in 2020.

Similarly, the proportion of corporations, financial institutions, and fund houses – the largest AUM contributors - also decreased to 45% in 2021 from 47% in 2020.

Asset Management and Fund Advisory Business by Client Type (Source: SFC as of end-2021)

On the contrary, the weighting of non-professional investors, including retail investors, increased to  31% from 28% the year before, with their total assets in Hong Kong growing by 19% to nearly HK$8 trillion.

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Hong Kong’s asset management industry went through some hard times during the past year. As the rest of the world was opening up, especially in other competing financial centres such as Singapore, London, New York, and even Tokyo, the city implemented a hotel quarantine of up to 21 days for overseas arrivals.

Industry insiders have cited stringent Covid-19 restrictions and the territory’s sweeping National Security Law as reasons for financial professionals leaving Hong Kong.

To maintain the competitiveness of Hong Kong’s asset management industry in the international arena and attract more inflows, industry groups have voiced their suggestions.

“As western countries are loosening up inbound controls and quarantine measures, we hope the Hong Kong government will have a timeline for relaxing its measures,” said the Hong Kong Federation of Insurers (HKFI).

“At the same time, we hope to have more incentive schemes in place to attract offshore placement of insurance in HK,” the HKFI told AsianInvestor.

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Considerations should also be given to including eligible insurance products into the product scope of the cross-boundary Wealth Management Connect Scheme. The scheme allows two-way investment for individual investors from the mainland and Hong Kong to purchase wealth management products, the HKIF noted, adding that the Hong Kong insurance industry strives to step up its role in serving the mainland market.

Hong Kong’s fund industry should also identify new growth drivers, noted Sally Wong, chief executive officer of the Hong Kong Investment Funds Association (HKIFA). 

As the central government has recently launched a private pension scheme for mainland residents with tax incentives, Wong said Hong Kong regulators could consider working with mainland regulators to allow these private pension schemes to invest in Hong Kong’s retirement funds under the Mandatory Provident Fund scheme.

“We see this as a natural fit because these funds are primarily for retirement purposes; and the investment scope and strategies are extremely prudent,” said Wong, who also sits on the SFC’s public shareholders group.

The headline of this article has been edited to clarify the growth rate of net inflows.