Hong Kong fund houses face staffing issue in China sales push
To qualify for the scheme, industry players need to make sure fund managers are based in city
Hong Kong-based fund houses are preparing for a game changer as regulators from both sides of the border work out the ground rules for the kind of funds to be sold on the mainland.
The planned mutual recognition scheme comes as big news for the fund industry as it means Hong Kong's players, which traditionally serve the city's seven million population, now have access to a much bigger market with a population of 1.3 billion.
But don't open the champagne yet. There are many issues to be sorted out before the scheme can be translated into a money spinner.
First, no timetable has been decided. As usual, mainland reforms will take time, but industry players are more positive this time. They have noted Beijing has moved pretty fast in the internationalisation of the yuan since 2009 and they believe the same pace may be seen in the fund reform.
But fund houses will need to change their practices. Under the scheme, only Hong Kong-domiciled funds authorised by the Securities and Futures Commission (SFC) can sold on the mainland while fund managers must be based here.
While all the 1,700 mutual funds targeted to be sold to Hong Kong retail investors are authorised by the SFC, only 300 are domiciled here. And these 300 funds are not that attractive as they are mainly Mandatory Provident Fund or exchange-traded funds.
Big names such as BlackRock and Allianz are said to be busy preparing to issue Hong Kong-domiciled funds to exploit the proposed changes.
What will make it more difficult is human resources as fund managers are required to be based in Hong Kong. This is an issue as many international fund houses may not have a big team in the city and the fund managers here mainly invest in Asia or greater China funds.
It may mean big players must relocate their global fund managers to Hong Kong if they want to tap the mainland market. Or they will need to hire more Hong Kong-based staff to manage the funds.
This will change the mix of fund staff in the city. At present, 32,188 people are working in the industry. Of them, 23,903, or 74 per cent, are in sales and marketing. Only 2.6 per cent are doing deals and 2.35 per cent are in fund administration. The rest are in research and other support roles.
This shows many fund companies only use Hong Kong as a sales centre for the city, the mainland and other parts of Asia, and they do not manage or invest the funds here.
If they want to tap the mainland market, they need to hire more administrative staff and managers in Hong Kong. Headhunting firms are expected to receive a lot of requests from these companies soon.
Overall, this reform is likely to help the Hong Kong fund industry expand more rapidly.
The industry has been doing well lately, with growth of 39.3 per cent last year with assets under management at US$1.6 trillion, according to SFC figures. This is better than Singapore, where the industry expanded 22 per cent to US$1.29 trillion.
It will be a good summer for fund house bosses in Hong Kong.