You're listening to Asia Centric from Bloomberg Intelligence, the podcast that pulls back the curtain on global business so you can invest better across the Asia Pacific rim. I'm John Lee in Hong Kong. Hong Kong's wealth management industry is booming as rich mainland Chinese investors continue to pour funds
into the city. Hong Kong's cross border wealth under management is now over two point two trillion dollars, making it the second largest in the world, and it's only a matter of time before it overtakes Switzerland as the biggest offshore finance center. What's driving China's individuals and families to invest overseas, what are they investing in and how will
China's economic slump impact future flows. Here to discuss Hong Kong's wealth management industry is Lemiel Lee, head of Wealth management at BNP in Hong Kong, and Shani Wong, senior financials analyst that Bloomberg and tell ugents. Welcome, Lemuel and Channing. Thank you for having me here. Lemuel. What fact is a driving Hong Kong as a wealth hump?
Well, several key opportunities are driving across the private wealth management industry in Hong Kong and Greater China. Firstly, the Hong Kong government is actively fostering a thriving ecosystem for family officers, making and attractive destinations for both clients and
wealth management professionals. More importantly, initiatives like tax the new Capital Investment Entrance Scheme relaunched this year and other streamlined regulations are attracting families and entrepreneurs to establish a presence in Hong Kong, creating significant opportunities for wealth managers. Secondly, the continued growth potential in mainland China. While growth may have slowed, the sheer size and potential for the Chinese
market reminds undeniable. Hong Kong serves as a crucial wealth management hub for its strategic location. Wealth managers with an onshore presence are well positioned to capitalize on this growth by catering for the growing affluent and high network segment that has an offshore need. Thirdly, well established capital markets Hong Kong is strengthening its position as a key connector between the Asia, the Middle East, and the mainland China.
This interconnectedness, coupled with a revival and IPO activity, presents opportunities for wealth managers to offer investment solutions and capture a share of the growing capital flows or not. I see these three factors as the driving force to inflows in Hong Kong.
Lemillu alluded to China's weak economic picture. It's well known that the country is suffering from a slow down. Its property market and stock markets are both pressed. Consumption is weak. But on the other hand, as we all know, mainland investors continue to pour money offshore. Are you surprised by the strength of all the flows given the weak economic picture.
China continues to be a key growth drive in the region. Growth may have slowed down, but the potential is still huge. Our access and interactions determines our flows. For example, the connect schemes between Hong Kong and China enables international investors
to gain broader access to onshore China capital markets. Through Hong Kong Remenbe internization presents opportunities for Hong Kong to position itself as an offshore Remenbee hub and wealth management center for remen Be assets for both China and international investors. In fact, after COVID, we have deepened interactions with prospects
and existing clients. As Chinese investors get more sophisticated, our bankers have been taking the opportunity to engage in conversations around more complex wealth needs such as secession planning, family office setup, and wealth diversification for their offshore wealth, pivoting
a lot from the traditional discussions around pure investments. The reduced iper activities and fundraising nevertheless has dampened overall investment sentiments and less pronounced wealth creations, hence less assets and flows.
And where are the rich mainland investors?
Like?
Where they putting their money? Is it in like an S and P five hundred ETF? Is it gold? Is it bitcoin? Is it? You know? Money? Paintings give us some color? Where are they putting their money?
Can I say all of the above?
Okay? Look?
After close to two years of pent up cash and deposit balances due to high interest rates, clients have finally started to return more broadly to lower risk and higher quality segments of the market. Top inflows were into fixed income such as global bond funds with a bias towards developed market and investment grade. These well rated bond funds provide relatively attractive, stable distribution income and our ideal position
for the rates cut environment. Equities continues to build momentum, in particular towards Japan, India and US across different sectors related to technology. With heightened volatility, many clients choose to use structure products to cautiously enter the market to limit
the downside. We also advocate higher portfolio diversification to improve risk return profiles for our clients and hence also saw good inflows for multi assets funds, but also to add higher components to alternatives including private debt, equity and hedge funds. In particular, liquid alternatives like relative value fixed income and long short global equity strategies receiving the best traction by Chinese investors.
And you first mentioned bond funds. Now you can get much higher interest rates in the US and other parts of the world than in China. The US stock markets have also significantly outperformed those on the mainland. Is this also another reason why mainland investors want to invest overseas but just getting a lot better returns.
I think returns headline is one target of which investors are yield seeking, but I think what's more the pertinent question is diversification. Many investors over the last four years have natural home bias and they've invested in their own markets, and we've seen the performance of Hong Kong and China
as a result. They've learned the benefits of diversification and not only targeting returns with the US, but earlier mentioned Japan, India, and they're really yield seeking to find returns in those respective markets, and that's why we really see the benefits of dipersification outside of your home market.
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Are they sort of like crazy rich billionaires or are they more like the single digit millionaire types? Like what does it take to become a client of a private bank?
Well, my definition private banking. There's several segments in the market but I'll use the industry standard of what we call the high network, which is generally between three to up to let's say twenty million or so, and the ultra high network, which is from normally thirty all the way up to one hundred or even to the billions. So the range is there. We are BNP par serve the spectrum of clients and are really agnostic to the size.
What's more important is we're making sure that we serve the needs and the needs offshore.
Okay, Shane, I want to bring you into the conversation. The chairman of UBS, Sergia Ermodi, warned earlier this year that Switzerland could lose its crown as the world's wealth management hub to Hong Kong. Now, can you give us some numbers? Is this a foregone conclusion and like when is this going to happen?
Yes, right now, Hong Kong has roughly about two point two trillion of our cross border wealth and Fwitzerland is the head with about two point four tillion. But when we look at the growth opportunity, the growth in Asia is a lot faster than what we're seeing in Europe, which is a developed market. So you know, a slam also mentioned. A key driving force is China. It is the second largest in terms of wealth globally, behind the US,
and people are still getting richer. You know, despite COVID and despite their current property slump, people still save a lot. You know, the savings rates really high, about the third of their income. And right now with the fact that property's done, you know, it's not an attractive investment. And then with deposit rate cuts, there is this huge drive for them to use that money and invest in high yielding investment products. And I think offshore is definitely a
very attractive destination for them. Even if the FED cuts rates later this year, the yields on something very low risk like a time deposit, it's still far higher than what they get on shore. So I think this is one of the key drivers that is pushing a lot of onshore customers to Hong Kong.
Okay, And when will Hong Kong overtake Switzerland? Do you think.
When we look at the growth potential, so for Hong Kong it could grow roughly about six to eight percent, so it should happen within the next two to three years.
And when a rich mainland investor decides to pour money overseas. It's not just Hong Kong. There's other options as well. There's obviously Singapore, there's also maybe potentially Dubai. How does Hong Kong compete for this money shanny. Yeah, So one.
Edge that Hong Kong has that none of the other places have would be their infrastructure connecting Hong Kong and global investors with China. And also the fact that right now regulators are really prioritizing these cross border schemes. They're really pushing ahead. So for example, earlier this year they increase the quotas for the southbound Wealth Management to connect and also they relax the eligibility criteria for the ETF
connect And there's just so much going on. So when we look at the flows through so many of their cross border schemes, like the Neutral Cognition A fund scheme for example, with AUM there surging. We look at the GDII funds on shore that is also accelerating. So it goes to show that policy support is also very important, and I think that is one key differentiating factor with Hong Kong. Thus is anywhere else.
And lemme or did you want to add to that?
Well, absolutely, I think Hong Kong and Singapore both possess key advantages that make them both leading hubs for managing private wealth in Asia. They both have their unique strength catering to varying client needs. Rather than competing I outside, they're often complementing each other in serving needs of sophisticated investors. Some families now opt to set up accounts in both cities.
Client seed diversification not only at a portfolio level, but also the custody of assets in terms of location the versification we see the growth of Asian high network and Ultra high network population, further strengthening the proposition for both hubs. Emerging markets like to buy are also worth monitoring, but unlikely to supersede establish plays. Yet, when we talk about competition, one point that I want to highlight for us is the competition on talent. This is something that keeps me
up every night. You know, how do we position ourselves as to go to bank to attract the right talents, to build a good working environment that enables our people to unleash their potential and perform at the best.
I wanted to mention on Singapore. Now they had a huge money laundering scandal last year. Authorities jailed. I think a number of individuals from the mainland. I think it was over two billion dollars. It was reported by various press that the funds were from criminal activities. Now, the Singapore authorities subsequently tightened family office regulations, making it more difficult basically to park your money. There is this do you think benefiting Hong Kong at all? Like this money now moving.
Back to Hong Kong, I think with Singapore's regulators really tightening the rules and you know, implementing tougher compliance criteria for a lot of these private banks, there could be a return of family officers to Hong Kong. So previously Singapore grew a lot faster than Hong Kong did, especially throughout COVID. There was a recent commission survey done by the Hong Kong government which showed that in Hong Kong there's about two thousand, seven hundred single family offices and
then Singapore had about one thousand, four hundred. So right now Hong Kong family office space is still a lot larger. But I think going forward, you know, as Singapore's regulated tightened in terms of scrutiny on the industry, Hong Kong at the same time, they are easing rules to clean tax concessions. So I think for the next a couple of years we could see Hong Kong maybe extend its lead a little bit.
I think what's important is to maintain a high standard of email vigilance in terms of onboarding, and I think Hong Kong over the years and decades there have been as an international hub, have maintained the standard, and that's why that has been proven to reinforce one of the
earlier points around well capitalized our market. And that's in itself the attractiveness because of the soundness of the fact that Hong Kong remains robust as a world class international financial centers and has the ability to really make sure that the wealth comes in addressing this needs. I think it's more pertinent and also explains the reason why these inflows are being reinforced back into Hong Kong.
And Lemielle, you talked about the war for talent. You are always trying to get the best people. Now, when I look at Hong Kong, I think a lot of people will be surprised at how strong the wealth management industry is doing. If you listen to the press, Hong Kong's property market is really suffering, especially on the commercial side. You know, Shannie mentioned that IPO activity is really down.
Retail spending is down as well. But it seems like the wealth management industry is the one sort of shining light within the finance industry that's doing well. Are you getting a lot of people, a lot of cvs wanting to work at BMP, and how are you trying to attract the right talent?
In terms of attracting talent, it's not something that we've only seen as the last couple of years. What's important to attract talent in the industry is making sure that we have the ecosystem for them to thrive. And I look at it in terms of three pillars or three pongs.
One.
We need to make sure that we attract the right people for that to happen. We need to make sure that we ensure we train them. We train them so that they know how to be in the industry, they know how to help serve the clients. And that's really important because we need to make sure that they we're given the career to thrive and having a longer term
prospect in the private wealth industry. Second of all, we need to make sure that they actually have the platform it was earlier shared by There's a lot of different regulations that come out, whether it be the SPI or the CIS. You know, how does the platform be agile enough to adapt to these new changes so you can be one of the earliest movers to be leading in
the private banking industry. And I think what's also important is the platform allows you to customize to the needs of our clients, so that you're not having cookie cutters and pushing products, but really customizing the needs of the inversus of whether it's high net worth or or try networth. And lastly, what's important is to have the products. We need to make sure the products are there, that we
are serving the needs of our clients. And now as clients needs are getting more sophisticated, we actually serve not only the needs based out of Asia, but they may have needs for MPa propose in Europe or we actually help them in terms of one bank. Also the business needs whether they need to raise capital or have M
and A so all not to attract talent. I think these three pillars are vital so that we can serve our clients' needs holistically and as a result of this over the years, Yes, we've been getting a lot of cbs.
To join us and Shannie. Looker Lemuel has been talking about BNP's role. But you know, just outside of B and P, which companies are really thriving in this wealth management environment in Hong Kong.
So I think everyone is doing really well. When we look at the more Hong Kong centric global banks like HSBC and Standard Hearted, you know, they talk about very strong increase in wealth management revenue. There isn't that much disclosure, but of what they disclose it is going very well. So for example, Muta fund sales, insurance sales that they're
doing very well. And then when we look at the Singapore banks as well, apart from them, you know, with a very big presence in Singapore, they also have a very large operation in Hong Kong too. So I think the Hong Kong banks and also the Singapore banks, just by their geographical footprint, they are pro the most positively leveraged to this Hong Kong Welsh growth story.
And look, we talked a lot about the growth potential, but let's also talk about the risk. Now. We all know that investing in this part of the world, especially when it relates to China, there's always regulatory risk. Is there any regulatory risks you can see on the horizon? A Shani? Can you just talk about that.
What we've seen the regulators do in recent years is to relax the rules, and it is quite unpredictable at times, but I don't think that they'll backtrack anytime soon. And from what the Hong Kong regulators and also mainline regulators have said, they do plan to increase the quotas for their current schemes, like for example, the Southound Wealth Management Connects. They already just tripled the individual quota to three million R and B and there is talk of that potentially
being listed higher. Because you know, this quota it doesn't really cater to the private banking space, which you know have a far larger out of wealth. So I think going forward, it's likely that they're going to be more
opportunities to come in terms of what could potentially go wrong. Ultimately, the regulators they do have a lot of control, so if any of these schemes were to not work, or if there's any sudden shock to the system or stress to the system, they could potentially pull back or tighten approvals. Another example would be the MRF scheme. Right now, the rules are quite tight and even though the scheme does allow asset managers to access on shore retail customers, the
pace of approval has been quite slow. But then again, there are talks of the rules being relaxed going forward. So you know that again is hope and more opportunity for Hong Kong FI managers to take advantage of these opportunities as they come.
Maybe I want to share one point. I would say industry trends have been continually thinking that Hong Kong has attracted money purely from China, but I do believe that has changed. What I mean by that is that Hong Kong as a super connector attracts significant capital inflows from not only China, but also playing a pivotal role in
linking to Southeast Asia and the Middle East. Its strategic location, robust legal framework, it's deep pool of financial talent and unparalleled service level makes it an attractive destination for both clients and wealth management professions. This we knows Hong Kong standing and Hong Kong has a long history of capital flows,
expertise and device to and from Southeast Asia. The Hong Kong government has recently been putting a lot of effort in building the corridors with the Asian countries, which has helped to drive a lot of business opportunities from MOSO places like Indonesia and Thailand. We're also seeing how things will involve in terms of the Middle East, and this is rather new, so we haven't seen significant inflows, but
there's a growing effort to develop this dialogue. So I thought it would be important for the listeners to also get a sense of where these flows are coming from across the region.
Okay, before I let you go, Lemielle, there's listeners of Asia centric all around the world. You know, a lot of people listening to you probably want a job in private banking. But if you're not in private banking, how do you get your foot in the door? Like give them some tips?
Well, I think what's important is to have transferable skill sets. What I mean by this is if you've been working in let's say, asset management, you may have an interest to join our discretionary or investment counselor's team. If you've got expertise across specific asset classes like equity, bonds of
fixed income, you can join our products team. But if you overall have a passion to serve the needs of clients, have a real meaningful engagement with clients in general and serving their needs, then you can become a banker and relationship manager. And what's really interesting and makes the career and wealth management fun is there's something new every day because clients have multi angles of needs and they change
throughout the life of their wealth journey. And what I mean by that is wealth is generally comes into three cycles. They have wealth generation, wealth management and wealth legacy. And what makes it fun is that we follow our clients through those cycle and that changes every day.
Okay, that's a great answer, Lemiel. We have three Australians working in Hong Kong now speaking on this podcast. If three Australians can do it, then other people can do it as well. It's been an interesting discussion on Age's wealth industry, China's billionaires, and Hong Kong's role as offshore financial center. Thank you, Lemiel and Shannie for joining the show.
Thank you.
Thanks.
I'm John Lee in Hong Kong. This podcast was produced by Clara Chen and you've been listening to the age of centric podcast