KPMG has just released a new report entitled “Asset Management and Private Equity Outlook,” which looks at the prospects for the asset management and private equity sector, from broad issues such as regulatory developments to key topics such as capital markets, virtual assets and family offices.
Recent growth in the institutional investor segment in the
Chinese mainland is providing an opportunity for global asset
managers that have experience in this area, according to KPMG.
Despite concerns over China’s slowing economy, KPMG
thinks that the Chinese mainland remains a huge economy with
evolving investment opportunities.
“The domestic asset management market in China continues to
mature, mostly driven by the retail sector. Recent growth in the
institutional investor segment in the Chinese mainland is also
providing an opportunity for global asset managers that have
experience in this area,” Andrew Weir, global chair, asset
management, KPMG International said. “Amid the
uncertain global environment, a wait-and-see approach has
sometimes been adopted, but now firms should also consider the
upside opportunity compared to the downside risk of
waiting.”
The environment for an initial public offering in Hong Kong and
other markets has a significant impact on the performance of the
asset management sector, particularly private equity, the firm
continued. 2023 was a quiet year for IPOs in terms of number and
funds raised across all major stock markets globally.
KPMG’s comments come at what has been a difficult time in Hong
Kong and the mainland. Stringent measures to curb the pandemic,
Beijing’s clampdown on certain sectors and trade disputes with
the West have taken the shine off the economic story. Some
investment managers expect difficult times ahead from China,
the world’s second argest economy. After a a tough 2023,
conditions in China aren’t likely to get better very soon. That’s
the take from firms such as Close Brothers Asset
Management,, BNY Mellon Investment
Management, Aegon Asset Management and JP Morgan. See more
commentary
here.
Hong Kong and China have taken steps to encourage capital
inflows. For example, there has also been a range of incentives
specifically aimed at encouraging family offices and high net
worth individuals, including a family office tax incentive
policy and the Capital Investment Entrant Scheme. These
incentives have been widely welcomed by asset managers in Hong
Kong and have generated a lot of interest from ultra-high net
worth families, especially from the Chinese mainland, KPMG said.
In early February, CPA Australia suggested that Hong Kong
should roll out tax incentives to attract companies to establish
regional headquarters, boost family office growth, and foster
tighter links with Gulf Co-operation Council nations.
Rates and IPOs
Looking ahead, interest rates may continue to come down this
year, the firm said. This will benefit the IPO market by
improving liquidity and valuations, although the timing and pace
of such rate cuts remains a matter for debate. While 2024 is
unlikely to see a major resurgence in IPOs – in Hong Kong or
other markets – KPMG is cautiously optimistic that this
year could mark the beginning of a longer-term recovery in
activity.
Hong Kong’s favourable tax regime is one of the key pillars of
its success as a global asset management hub, but the city must
ensure that it remains competitive with other
locations, the firm said.
The Asian city has taken steps to encourage family offices to set
up there. However, KPMG said that fund managers may face
obstacles in fulfilling the requirements of some of
the other incentives, such as the Tax Concession for Carried
Interest. The government is reviewing this incentive
and it is expected that changes will be made to the regime.
“Removing the uncertainty around some of the current incentives
is the most important step. More clarity about the scope of the
incentives available and the conditions that need to be satisfied
will also address concerns of global asset managers about
domiciling funds and SPVs [special purpose vehicles] in Hong
Kong,” Darren Bowdern, head of asset management tax,
ASPAC, KPMG China said.
While the external environment remains challenging, the Hong Kong
government has continued to make efforts to build a healthier and
more stable asset management ecosystem. It has introduced a
variety of new regulations such as new rules, guidance and
circulars on virtual assets, KPMG continued. The
introduction of the licensing regime for virtual assets’ trading
platforms will move trading virtual assets into a regulated
space, which will bring about more stability, certainty and
investor protection. With its “proactive” approach to regulation,
Hong Kong has established itself as a hub in the virtual assets
space, and it is expected that more regulatory developments will
follow in 2024, KPMG said.
While 2023 saw a lot of interest from clients who want to
learn about the structure and requirements, KPMG expects
that more family offices will be established in the year ahead as
UHNW individuals put their plans into action.
Hong Kong and mainland China are working to recover from the
Covid-19 pandemic. There are competitive challenges: Geopolitical
shifts, relating to Hong Kong’s relations with mainland China,
have also raised Singapore’s relative standing as a wealth
management hub, with its conducive environment for family
offices, for example.
A number of groups have urged Hong Kong to sharpen incentives
including the Alternative Investment Management
Association. In June 2023, Hong Kong’s government unveiled
its “Network of Family Office Service Providers.” The rollout of
the network was one of eight initiatives in the government’s
Policy Statement on Developing Family Office Businesses in Hong
Kong, announced on 24 March 2023.