17/10/23

HONG KONG: HK's family office push falls flat with global billionaires

As published on: asia.nikkei.com, Tuesday 17 October, 2023.

Hong Kong's push to become a hub for family offices has received a lukewarm response from the ultrarich nearly a year after the city's chief executive pitched the idea as a way to strengthen the city's role as a financial center.

Financial Secretary Paul Chan, speaking in June during the launch of a family office service-provider network, said there was a "pipeline" of family offices ready to set up in Hong Kong.

But despite hosting roadshows around the world and amending laws to exempt tax on profits for family offices set up in Hong Kong, wealth managers and family office advisers say there has been little response.

"There's very little incentive for foreigners to come to Hong Kong, and that includes mainlanders," one head of a wealth management company who declined to be named said. "The city already has a very low tax environment and many other ways to invest."

Family offices are privately held companies that handle wealth management and investments for rich families.

Hong Kong recently passed an amendment giving single-family offices tax exemptions on profits if they have an aggregate asset value of at least 240 million Hong Kong dollars and an operating expenditure of at least HK$2 million. The corporate tax rate is 16.5%.

The amendment was part of eight measures the government announced to help reach its goal of attracting at least 200 of the world's top family offices to set up shop in the city by 2025. The government also set aside HK$100 million to fund Family Office HK, a small team tasked with bringing in foreign direct investment, and in March organized the Wealth for Good summit for billionaires and their advisers.

But industry insiders say the campaign is less than original and offers little fresh incentive to investors. Singapore began its own push to woo the ultrarich three years ago and had 1,100 family offices by the end of 2022.

Unlike Singapore, Hong Kong does not offer a pathway toward permanent residency. There has been a promise to revive the capital investment entrant scheme, which ended in 2015 after it led to soaring real estate prices. This time, new conditions are said to require investments into assets other than property.

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The government said there were no available statistics for family offices in Hong Kong but that there had been a "significant surge" of interest.

"These inquiries have come from various regions, including mainland China, the Americas, Europe, the Middle East and Southeast Asia," a spokesperson from Family Office HK said.

Family Office HK did not say whether any of those inquiries had materialized.

In a similar vein, international banks in Hong Kong said they have seen a rise in inquiries for the single-family office scheme but declined to give specific figures on how many have actually been established.

"Requests have come in from various regions globally, including Southeast Asia and mainland China, and the first movers have materialized into new family office setups," said Aik Ping Ng, head of family office advisory for the Asia-Pacific region at HSBC Global Private Banking. Existing ultrarich clients are also looking to use the scheme, he added.

Swiss private bank UBP said the number of inquiries about setting up family offices in Hong Kong had gone up since the tax concession was passed. Clients have asked the bank to provide a comparison analysis between setting up in Hong Kong versus Singapore, said Fan Choi, head of wealth planning for North Asia.

Total assets under management in the city provide another window into how receptive investors are.

According to the financial regulator's report released in August, the amount of assets under management in the wealth and asset management sector dropped 14% last year, with net fund inflows totaling HK$121 billion -- just a fraction of the HK$638 billion received in 2021.

Frosty relations between China and the U.S. were another concern for wealth managers and family offices, according to industry surveys.

A head of a wealth management company that works with mainland Chinese clients said he has seen several individuals register under a single-family office. But most still preferred to put their assets beyond the hands of Chinese authorities.

"That was what I have been told consistently," he told Nikkei Asia, declining to be named due to the sensitivity of the topic. "Even if the legislation and benefits are similar to Singapore, the underlying question will always be 'is it safe?'"

Kia Meng Loh, Singapore-based senior partner and chief operating officer at Dentons Rodyk & Davidson, shared a similar view.

"Those who have not started any family offices outside of China may consider Singapore a little bit more favorably than Hong Kong as of now," Loh said. "The sense is that if they really want to park their money outside of China safely, they may think that Hong Kong might not be that safe."

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Hong Kong Family office HNWIs China