Wealth in Hong Kong: HNW Investors 2018

Table of Contents

1. EXECUTIVE SUMMARY 2

1.1. The HNW investor base is diversified, with large elements of offshore 2

1.2. Key findings 2

1.3. Critical success factors 2

2. OVERVIEW 9

2.1. Hong Kong’s wealth market requires a keen competitive edge 9

2.2. Demographics: professionals employed in the financial services industry represent a lucrative target market 9

2.3. Expats: Wealth managers in Hong Kong must have a compelling proposition for the expat opportunity 11

2.4. Investment preferences: lack of time drives uptake of advice 12

2.5. Asset allocation: bonds and alternatives will be on the rise 13

2.6. Offshore preferences: a good investment track record and a wide range of products can entice wealth home 14

2.7. HNW product and service demand: wealth managers need to develop tax capabilities along with a range of discretionary options 15

3. WEALTH MANAGERS NEED A VARIED TARGETING STRATEGY 16

3.1. Offerings aligned with key sectors will be lucrative in trade, construction, and finance 16

3.1.1. Highly paid executives are not uniformly distributed across the economy 16

3.1.2. Hong Kong’s HNW population has long been property- and finance-focused, but has moved away from manufacturing 17

3.2. There are more than 22,000 HNW women in Hong Kong 18

3.2.1. Wealth held by women is on a long-term growth path in Hong Kong 18

3.2.2. Tailoring a proposition to HNW women in Hong Kong requires a look at family wealth 19

4. EXPATS ARE THE MAIN OPPORTUNITY FOR HONG KONG WEALTH MANAGERS 21

4.1. Catering to the expat market requires serving business executives 21

4.1.1. The bulk of HNW expats are in Hong Kong only temporarily, requiring rapid response 21

4.1.2. Highlighting the extensive array of investment options will pull expat assets to advisors 23

4.1.3. Wealth managers must be prepared to cater to the needs of HNW investors looking to migrate to Hong Kong from the mainland 24

5. DISCRETIONARY MANDATES ARE SET TO SOAR 28

5.1. Hong Kong is below average in discretionary but this will change 28

5.1.1. The current allocation into discretionary mandates is modest but growing 28

5.1.2. Demand for discretionary mandates has been building in Hong Kong since plummeting during the financial crisis 29

5.1.3. Discretionary mandates appeal to those wanting to spend less time on their investments, but who still want that alpha 30

5.1.4. Asset management needs to be part of a bundled service 31

6. BONDS ARE THE PREFERRED ASSET CLASS AMONG HNW INVESTORS 33

6.1. Hong Kong investors are big on direct bonds and equity 33

6.1.1. Shares and corporate debt are a major part of HNW portfolios 33

6.1.2. The Hong Kong bond market will be spurred on by government, and wealth managers can benefit 34

7. OFFSHORE WEALTH IS A CRITICAL SEGMENT 37

7.1. Offshore wealth is primarily Asian, but Hong Kong attracts funds from around the world 37

7.1.1. Offshore HNW AUM are concentrated from Greater China, although India is rising 37

7.2. Providing offshore investors with access to real estate investments is essential 39

7.2.1. Stability and well-developed financial markets make HNW offshore clients crucial to private banking business volumes 39

7.2.2. Wealth managers can play up the stability of the market to attract the cash element of the Asian offshore portfolio 39

7.3. Like many offshore centers, CRS implementation is an issue for Hong Kong 42

7.3.1. The top drivers for non-resident investors booking into Hong Kong derive from its safe-haven status 42

8. APPENDIX 44

8.1. Abbreviations and acronyms 44

8.2. Bibliography 44

8.3. Supplementary data 45

8.4. Definitions 47

8.4.1. Affluent 47

8.4.2. HNW 47

8.4.3. Liquid assets 47

8.5. Methodology 47

8.5.1. GlobalData’s 2017 Global Wealth Managers Survey 47

8.5.2. GlobalData’s 2016 Global Wealth Managers Survey 48

8.5.3. Level of agreement calculation 48

8.5.4. Service level of demand score 48

8.5.5. Forecast level of demand calculation 48

8.6. Further reading 49

List of Tables

Table 1: Cash and near-cash products: importance of asset allocation drivers 45

Table 2: Equities: importance of asset allocation drivers 45

Table 3: Bonds: importance of asset allocation drivers 45

Table 4: Property: importance of asset allocation drivers 46

Table 5: Commodities: importance of asset allocation drivers 46

Table 6: Alternatives: importance of asset allocation drivers 46

List of Figures

Figure 1: Hong Kong’s wealth market remains male-dominated, but wealth is slowly starting to transfer to women from founding patriarchs 10

Figure 2: The large expat client base is mainly drawn from the Commonwealth or around the region 11

Figure 3: Investors are becoming more risk-averse, with a greater preference for short-term investments 12

Figure 4: Commodities remain out of favor in Hong Kong as bonds go from strength to strength 13

Figure 5: The US and European financial centers entice money out of Hong Kong with better returns and range 14

Figure 6: Strong movement towards discretionary asset management means it should be the focus for all wealth managers 15

Figure 7: The key industries for high-earning executives in Hong Kong are trade and construction 17

Figure 8: Real estate and construction have traditionally generated Hong Kong’s fortunes and this remains the case 18

Figure 9: Women in Hong Kong have been major wealth generators for some time 19

Figure 10: Women’s wealth in Hong Kong is more aligned to family wealth but that doesn’t make them idle heiresses 20

Figure 11: Hong Kong expats are typically in the market for one or two postings before moving on 22

Figure 12: The broader foreign population in Hong Kong is longer-term than HNW expats 23

Figure 13: Hong Kong’s superior capital markets attract expat wealth to local wealth managers 24

Figure 14: Greater China figures strongly in the HNW expat community, along with the Commonwealth 25

Figure 15: The bulk of foreigners in Hong Kong are from the rest of Asia 26

Figure 16: Hong Kong, like the rest of Asia, lags in uptake of discretionary mandates 29

Figure 17: Discretionary mandates will be the clear winner in terms of growing demand from HNW clients 30

Figure 18: HNW investors expect time savings and alpha from their discretionary mandates 31

Figure 19: Planning services have strong demand currently but few are expected to grow 32

Figure 20: The stability of fixed-income products is gaining traction among local risk-averse HNW investors 34

Figure 21: Though the Hong Kong bond market remains near an all-time high, the dim sum element has shriveled 36

Figure 22: Hong Kong is among the top offshore financial centers for Asian HNW investors 38

Figure 23: Property and equities dominate the Asian offshore portfolio 40

Figure 24: Hong Kong remains the world’s pre-eminent offshore renminbi booking center 41

Figure 25: Stability and anonymity are big drivers for offshore investors in Hong Kong 43