Investment firms bet on future Hong Kong 'fund factory'

Government's move to woo asset management companies shows early signs of success as big names hatch plans to set up shop in Hong Kong

PUBLISHED : Monday, 08 April, 2013, 12:00am
UPDATED : Monday, 08 April, 2013, 3:17am

Several international fund houses are planning to use Hong Kong as a base for their investments after the government vowed to turn the city in a "world factory" for the asset management industry. The government is proposing a combination of reforms to attract investment.

"Many international fund houses now only use Hong Kong as a sales centre, but the funds are created and invested through their offices in London or New York," said Julia Leung Fung-yee, Undersecretary for Financial Services and the Treasury.

She said that of the 1,800 retail funds in the city, only about 300 are domiciled in Hong Kong, with the rest based in Europe. Their investment teams are mainly based in London or New York.

She said about 75 per cent of staff in the fund industry in Hong Kong are working in marketing or sales departments, with the rest in research, investment and settlement. Leung said that if more fund houses used the city as a base to create funds and invest in Hong Kong, it would create more jobs for research analysts, fund managers, lawyers, accountants and other professionals. She estimated that for every additional fund manager in the city, 4.5 other jobs would be created.

"We want to see more 'made in Hong Kong' funds," she said. "The government's proposed reforms will encourage them to use Hong Kong as a base to create funds to turn the city into a world factory for the fund industry."

Financial Secretary John Tsang Chun-wah said in his budget speech in February that the government would propose law changes to extend profits tax exemptions to offshore private equity funds. He also planned changes to allow Hong Kong funds to set up as open-ended investment firms instead of trusts, as required under existing rules.

Leung said both reforms would involve separate consultations by the end of this year before lawmakers' approval was sought. If they passed, it would be easier for fund firms to set up and manage funds here. She said some big-name fund houses are already planning to set up teams to create and invest their fund products in the city. She did not disclose names, but fund managers said the US's BlackRock and France's Amundi are among those having expressed interest.

In another move to attract international funds, the government is in talks with mainland authorities on a mutual recognition agreement for the cross-border selling of funds. That would mean Hong Kong-domiciled funds could be sold on the mainland and mainland funds could be sold in Hong Kong. Leung said a working group of Hong Kong and mainland officials is now examining the fund regulation that would be required.

Leung said the timing is right for the government to carry out the reform to attract fund companies, as many western financial firms are eyeing the rapid wealth and economic growth in Asia, particularly on the mainland, and that they would like to use Hong Kong as a gateway for investing in the mainland.

Likewise, she said, many mainland funds would also like to use Hong Kong as a base for investing in overseas markets.

In addition, she said the mainland's relaxation of yuan trading since 2009 had generated interest among international fund companies in setting up in Hong Kong to capture the potential of yuan fund products.

"Hong Kong has the biggest pool of yuan funds outside of China," she said. "Fund companies eyeing the opportunities [in] yuan products would like to expand in the city," she said.