Why Hong Kong is the Ideal Destination for Fund and Asset Ma

Hong Kong has a long history as a global centre of trade and has been celebrated as the freest economy on the planet for 25 years, falling only second to Singapore in 2020. Not willing to settle for second place, however, Hong Kong has since implemented attractive tax arrangements and flexible, modern fund structures in a bid to take the crown as the world’s most attractive hub for fund managers.

These efforts appear to be working: Hong Kong retail funds enjoyed gross sales of US$19.8 billion in the first quarter of 2024, a 69% swell from the previous quarter. This impressive growth isn’t solely due to recent legislative changes but builds on an already world-famous foundation of strategic location, robust regulatory framework, and the persistent cultivation of a forward-thinking pro-business environment.

This article will explore the components of that foundation, demonstrating why Hong Kong fund managers find the city ideal by examining its economic stability, strategic location, connectivity to Mainland China, and more. Understanding these factors will illustrate how Hong Kong continues to offer unparalleled growth and innovation opportunities in the fund management sector.

Strategic Location and Connectivity

The World’s Bridge Between West and East

Put simply, Hong Kong is arguably the world’s best bridge between West and East, offering unparalleled access to some of the world’s fastest-growing economies. Set at the gateway to the world’s second-largest economy in Mainland China, Hong Kong offers fund managers a unique vantage point to capitalise on opportunities across the region. The city’s world-class infrastructure, including its state-of-the-art airport (connecting to over 220 destinations worldwide), and the eighth busiest container port globally, ensures seamless connectivity to major markets.

24/7 Business

For virtually 24/7 international business, Hong Kong’s time zone fortuitously overlaps with major global markets, allowing financial institutions to operate across different time zones almost seamlessly. This geographical advantage means fund managers can engage with their clients and counterparties in Europe, North America, and Asia within the same business day, maximising operational efficiency and responsiveness.

Economic Stability and Market Size

Resilient Economy

Hong Kong’s economic stability is a key factor that makes it an attractive destination for fund managers. Despite global economic uncertainties in recent years, Hong Kong has maintained a resilient economy with steady growth rates and low inflation (1.2 per cent in May 2024). In fact, the total net asset value of all Mandatory Provident Fund (MPF) schemes in Hong Kong has reached US$1.18 trillion, a remarkable 129 per cent growth over the past 10 years. The city’s strong fiscal reserves and sound monetary policies contribute to its economic robustness, providing a stable environment for investment.

Significant Market Size

Hong Kong’s financial market is one of the largest in the world, with a significant concentration of international banks, asset management firms, and insurance companies. The Hong Kong Stock Exchange (HKEX) is among the top global exchanges by market capitalisation, offering a broad array of investment opportunities.

As mentioned, gross retail fund sales in Hong Kong hit US$19.8 billion in the first quarter of 2024, offering 69% growth from the previous quarter. This diverse financial ecosystem caters to institutional and retail investors, making it a tremendous hub for global capital flows.

Access to Mainland China

Hong Kong’s close and familiar proximity to Mainland China positions it as a strategic gateway for fund managers looking to tap into the truly vast Chinese market. Integration with Mainland China’s financial markets has been facilitated through several key initiatives, such as the Greater Bay Area (GBA) development and the Stock Connect and Bond Connect schemes, which enhance investment opportunities and capital flow between the two regions.

GBA Initiative

The GBA initiative is a significant growth driver for Hong Kong’s financial sector. This initiative aims to create an integrated economic and business hub by linking Hong Kong with Macau and nine cities in Guangdong Province. The GBA is home to nearly 87 million people and boasts a combined GDP of US$1.97 trillion, making up 11% of Mainland China’s economy​​. For fund managers, the GBA offers a wealth of opportunities in terms of investment, market access, and business expansion.

Financial Connectivity Programmes

Hong Kong has established various programmes to enhance financial connectivity with Mainland China. The Stock Connect and Bond Connect schemes have been the most instrumental — opening up China’s capital markets to international investors. These programmes allow investors in Hong Kong to trade Mainland Chinese stocks and bonds directly and vice versa. As of 2023, the assets under management (AUM) under the Mutual Recognition of Funds (MRF) agreement in Hong Kong are valued at almost US$1.93 billion, showing how well these initiatives have worked.

Opportunities for Hong Kong Fund Managers

For fund managers, Hong Kong’s role as a direct line to Mainland China presents exciting opportunities. Notably, the ability to access Mainland Chinese markets while operating within Hong Kong’s robust regulatory framework provides a unique advantage. The city’s ongoing efforts to align its financial regulations with international standards also ensure a secure and attractive environment for cross-border investments. As Mainland China continues to open its financial markets, fund managers in Hong Kong are well-positioned to capitalise on these brand-new opportunities, driving growth and innovation in the sector.

Skilled Workforce and Talent Pool

Hong Kong is renowned for its highly skilled and multilingual workforce, which is a significant draw for fund and asset managers. The city’s talent pool comprises professionals with extensive experience in finance, law, and business, providing fund managers with access to top-tier expertise. As of 2022, the financial services sector employs over 269,000 people, accounting for about 7% of Hong Kong’s total workforce and 22% of the city’s GDP, highlighting the depth of talent available​​.

Education and Training

The city’s education system, including world-class universities and specialised training programmes, ensures a steady supply of qualified professionals. Institutions like the University of Hong Kong and the Hong Kong University of Science and Technology are renowned for their finance and business programmes, producing graduates who are well-prepared to meet the industry’s demands. Additionally, professional bodies such as the Hong Kong Institute of Certified Public Accountants (HKICPA) offer ongoing training and certification programmes, ensuring that the workforce remains up-to-date with global best practices​​.

Talent Attraction Initiatives

To maintain its competitive edge, Hong Kong has implemented various initiatives to attract and retain top talent. Programmes such as the Quality Migrant Admission Scheme (QMAS) are designed to bring highly skilled professionals from around the world to Hong Kong​​. These efforts, combined with the city’s vibrant lifestyle and cosmopolitan culture, make Hong Kong an appealing destination for international talent.

Tax Incentives and Business-Friendly Environment

Attractive Tax Regime

Hong Kong’s favourable tax regime is one of the keys to its long-storied success as a global asset management hub. The city offers a low and simple tax structure, with a corporate tax rate capped at 16.5 per cent and no capital gains tax, withholding tax, or VAT​​​​. Hong Kong also has implemented tax incentives aimed explicitly at attracting fund managers. For instance, the open-ended fund company (OFC) and limited partnership fund (LPF) structures provide enhanced eligibility for profits tax exemptions​​.

Compliance Cost Savings

Fund managers domiciling their funds in Hong Kong benefit from significant annual compliance cost savings. There are no director registration fees, and the requirement for offshore legal counsel or auditors is minimised.

Government Subsidies

To further attract fund managers, the Hong Kong government offers subsidies covering up to 70 per cent of the eligible expenses for establishing or redomiciling funds as OFCs or LPFs, subject to a cap of HKD 1 million per OFC and a maximum of three OFCs per fund manager​​. These subsidies include legal and professional services costs, making Hong Kong an even more attractive destination for fund managers looking to optimise their operations.

Environmental, Social, and Governance (ESG) Focus

Rising Importance of ESG

The growing importance of ESG factors in Hong Kong’s fund management industry is undeniable, with regulators actively fostering the development of green finance and ESG investing. The Securities and Futures Commission (SFC) launched its Strategic Framework for Green Finance in 2018, aiming to incorporate ESG considerations into investment processes and enhance the transparency of ESG-related disclosures​​.

Investment Trends

By 2025, 84% of asset managers expect to allocate more than 5% of their AUM to ESG products, with a quarter anticipating an allocation of over 25%​​. This shift is driven by investor demand for sustainable investment options that deliver positive financial returns while addressing environmental and social issues.

Where to Next With InCorp

Hong Kong’s status as a premier destination for fund and asset managers is built on a decades-in-the-making foundation of strategic location, robust regulatory framework, economic stability, and advanced infrastructure. The city’s unique position as a gateway to Mainland China, coupled with attractive tax incentives and a focus on ESG, only further enhances its appeal in the fund management sector.

To learn more about how you can redomicile your funds in Hong Kong, reach out to InCorp today. Our team of experts is ready to provide you with the advice and assistance you need to enter Hong Kong’s lucrative fund management sector successfully.