Hong Kong Private Wealth Management Report 2022: $1.35 Trillion AUM & 182,000 HNWIs
22nd October 2022 | Hong Kong
The Hong Kong Private Wealth Management Association (PWMA) & KPMG China has released the Hong Kong Private Wealth Management Report 2022, providing an overview of Hong Kong private wealth management industry, and key investment & business insights. In 2022, Hong Kong private wealth management industry reported a total of $1.35 trillion AUM (HKD 10.6 trillion), a decrease of 6% from 2020 ($1.44 trillion, HKD 11.3 trillion). In 2021, Hong Kong has 182,000 HNWIs, a decrease of 3.1% from 2020. The 4 key impact on Hong Kong private wealth industry are COVID-19 pandemic, Geopolitical situation, Mainland China policy changes for certain industries, and Rising Inflation and the top 3 Investment priorities of clients are Protecting portfolio against inflation (70%), Value opportunities in recession (67%), and Geographic diversification (34%). The top 3 AUM by products are Listed equities ($660 billion), Cash & deposits ($175 billion), and Private funds ($148 billion). The top 5 key growth drivers for Hong Kong private wealth industry are Mainland Chinese market, 2nd & 3rd generation, family offices to setup in Hong Kong, young entrepreneurs, and offshore clients. In 2022, the Hong Kong AUM by source are: Mainland China (38%), Hong Kong (40%), APAC (13%), Global (9%). The top 3 sectors private wealth talent are leaving to are External asset managers, Private equity, Investment banking. See below for key findings in the latest Hong Kong Private Wealth Management Report 2022. View full report here
” $1.35 Trillion AUM & 182,000 HNWIs, Top 3 AUM by products are Listed equities, Cash & deposits, Private funds.
Top 3 sectors private wealth talent Leaving for: External asset managers, Private equity, Investment banking.”
Hong Kong Private Wealth Management Report 2022
Key Findings:
- 2021 Hong Kong AUM: $1.35 trillion (HKD 10.6 trillion), Decrease 6% from 2020 ($1.44 trillion, HKD 11.3 trillion)
- Market Return: -12%, -$180 billion AUM (HKD 1.4 trillion)
- Net inflows: +6%, $81.28 billion AUM (HKD 638 billion)
- Hang Seng Index Decline: -14% in 2021
- HNWs in Hong Kong in 2021: 182,000 (Decrease 3.1% from 2020)
- 4 Key Impact on HK Private Wealth Industry: COVID-19 pandemic, Geopolitical situation, Mainland China policy changes for certain industries, Rising Inflation
- Macro Trends Impacting Clients: Rising inflation & interest rates, Geopolitical situation, Regulatory uncertainty for certain industries in Mainland China, Russia / Ukraine conflict
- Top 3 Investment Priorities of Clients: Protecting portfolio against inflation (70%), Value opportunities in recession (67%), Geographic diversification (34%)
- Top 3 AUM by Assets / Products: Listed equities ($660 billion), Cash & deposits ($175 billion), Private funds ($148 billion)
- Plans for Custody & Trading of Cryptocurrencies, Virtual Assets: No Plans (81%), Building Own (14%), Partnering (6%)
Key Business Findings:
- COVID-19 Impact on Operating Models: Client interaction medium (78%), Work arrangement (78%), Operational processes (72%)
- Key Growth Drivers for Hong Kong PWM Industry: Mainland Chinese market, 2nd & 3rd generation, family offices to setup in Hong Kong, young entrepreneurs, offshore clients
- Hong Kong AUM by Source in 2022:, Mainland China (38%), Hong Kong (40%), APAC (13%), Global (9%)
- Hong Kong Ranking (Wealth Mgmt Centre): Ease of trading, Quality of service, Access to leading research & content, Ease of on-boarding, Range of investment options
- Hong Kong Strength: Proximity to mainland China & integration with Greater Bay Area, Strong IPO pipeline of mainland China companies, Highest density of UHNWIs in Asia, Diverse range of investment options
- Top Constraints of Growth: Challenging regulatory environment (81%), Travel restrictions (81%), Limited private banking talent pool (56%), HK political situation (56%)
- Top 3 Regulatory Areas with Most Resources Spent: KYC & AML (97%), Sales practices & suitability, including complex products (89%), Product due diligence (54%)
- Top 3 Business Functions to Increase Investments: Relationship Managers (81%), IT (61%), Product (53%)
- Talent Departing: Departing Private Wealth industry (8%), Departing Hong Kong (39%), Both (53%)
- Top 6 Sectors Private Wealth talent is leaving to: External asset managers, Private equity, Investment banking, Other financial industries, Insurance, Virtual assets firms
- Top 3 Factors to make the Relationship Manager role more attractive: Remuneration (94%), Administrative burden (72%), Reduce risk of regulatory liability (50%)
Summary:
- Hong Kong’s PWM industry remains robust as net fund inflows have continued despite more challenging market conditions
- Mainland China (Greater Bay Area, GBA in particular) is seen as the biggest growth opportunity for the industry. Digital transformation needs to continue if firms are to successfully target the next generation of investors
- Increased focus on wealth management in Hong Kong’s higher education, alongside upskilling of staff and attracting professionals from the GBA, is needed to ensure a sufficient level of talent during the post-pandemic recovery
- The industry should engage with government & regulators to ensure Hong Kong improves on its positioning as a wealth management hub and is able to compete more effectively in attracting family offices
1) Hong Kong Private Wealth Management Industry
Hong Kong Private Wealth Management AUM:
- 2021 – $1.35 trillion (HKD 10.6 trillion), Decrease 6% from 2020 ($1.44 trillion)
- 2020 – $1.44 trillion (HKD 11.3 trillion)
- 2019 – $1.16 trillion (HKD 9.1 trillion)
- 2018 – $970 billion (HKD 7.6 trillion)
- 2017 – $1.02 trillion (HKD 7.8 trillion)
- 2016 – $790 billion (HKD 6.2 trillion)
- 2015 – $690 billion (HKD 5.4 trillion)
Analysis:
- 2021: Decrease 6% from 2020 of $1.44 trillion to $1.35 trillion (HKD 10.6 trillion)
- Market Return: -12%, -$180 billion AUM (HKD 1.4 trillion)
- Net inflows: +6%, $81.28 billion AUM (HKD 638 billion)
- Hang Seng Index Decline: -14% in 2021
- HNWs in Hong Kong in 2021: 182,000 (Decrease 3.1% from 2020)
Greatest Impacts on HK Private Wealth Management Industry:
- COVID-19 pandemic
- Geopolitical situation
- Mainland China policy changes within certain industries
- Rising Inflation
2) Investments
Macro Trends Impacting Investment Outlook & Risk Tolerance of Clients:
- Rising inflation & interest rates
- Geopolitical situation
- Regulatory uncertainty within certain industries in Mainland China
- Russia / Ukraine conflict
Clients Investment Risk Appetite: Next 12 months vs Last 12 months:
- Significantly increased – 7%
- Slightly increased – 14%
- No change – 25%
- Slightly deteriorated – 34%
- Significantly deteriorated – 20%
Investment Priorities of Clients:
- Protecting portfolio value against inflation – 70%
- Value opportunities in a recessionary environment – 67%
- Geographic diversification – 34%
- New sector focus (biotech, healthcare, tech, education, real estate, etc.) – 31%
- Sustainable investment (ESG) – 25%
- M&A complementary/ diversify from core business – 15%
- Philanthropy – 2%
AUM by Assets / Products:
- Listed equities – $660 billion (HKD 5.18 trillion)
- Cash & deposits – $175 billion (HKD 1.37 trillion)
- Private funds – $148 billion (HKD 1.16 trillion)
- Bonds – $121 billion (HKD 952 billion)
- Public funds – $94.4 billion (HKD 741 billion)
- Managed accounts – $40.3 billion (HKD 317 billion)
- Others – $107 billion (HKD 847 billion)
ESG Allocation of AUM: 2022 / In 5 Years (2027)
- 0 to 10% – 86% / 25%
- 11 to 20% – 6% / 39%
- 21 to 30% – 6% / 22%
- 31% to 40% – NA / 6%
- 41% to 50% – NA / 3%
- More than 50% – 3% / 6%
Clients Portfolio Allocation in ESG (2022):
- 0 to 5% – 41%
- 6 – 10% – 28%
- 11 to 20% – 15%
- 21 to 30% – 11%
- 31% to 40% – 1%
- 41% to 50% – 2%
- More than 50% – 1%
Plans for Custody & Trading of Cryptocurrencies, Virtual Assets
- No Plans – 81%
- Building own infrastructure to support client activity – 14%
- Partnering with a crypto-native company to support client activity – 6%
3) Business
COVID-19 Impact on Private Wealth Firms’ Operating Models:
- Change in client interaction medium – 78%
- Work arrangement redefined – 78%
- Change in operational processes – 72%
- Change in product focus – 17%
- Premise’s redesign – 14%
- Other – 8%
- Outsourcing approach – 6%
Expected Annual Growth in AUM (5 Years)
- 0 to 5% – 8%
- 6 to 10% – 67%
- 11 to 20% – 22%
- 21 to 30% – 3%
- More than 30% – 0%
Key Growth Drivers for Hong Kong PWM Industry:
- Further penetrating the Mainland Chinese market
- Targeting the 2nd (or 3rd) generation
- Attracting more family offices to setup in Hong Kong
- Targeting young entrepreneurs
- Attracting more offshore clients residing in other markets
Hong Kong AUM by Source in 2022:
- Mainland China – 38%
- Hong Kong – 40%
- APAC – 13%
- Global – 9%
Hong Kong AUM by Source in 2027 (Estimates):
- Mainland China – 49%
- Hong Kong – 33%
- APAC – 11%
- Global – 7%
Changes needed to make Wealth Management Connect (Mainland China, Hong Kong, Macau):
- Greater quota size / freer conversion of funds
- Wider range of products
- Harmonisation of investment selling rules and regulation across the GBA
- Easier flow of information for account opening
Required attributes to attract the next generation of investors:
- Holistic digital ecosystem/ Multi-channel delivery – 78%
- Self-service investment platforms – 64%
- Instant messaging (WeChat, WhatsApp) – 36%
- Holistic wealth solutions – 31%
- Access to virtual asset investments – 28%
Institutional types of service and access – 17% - Greater range of ESG investment options – 17%
- Access to global research and products – 14%
- Non-financial advice – 11%
- Philanthropy services – 3%
- Transparency in pricing – 3%
Hong Kong continues to be an attractive wealth management hub in Asia:
“Hong Kong and Singapore are the premier financial centres in Asia and the wealth management industry has thrived in both for over a decade. Many interviewees noted that Singapore is seen to have benefitted from regulatory support to attract fund inflows as well as the easing of travel restrictions. While the client survey found there to be a slight preference to have assets booked in Singapore, respondents also ranked Hong Kong as their preferred wealth management centre across many capabilities and attributes. The private wealth management industry in Hong Kong may therefore expect to see a strong rebound in its mainland China business once travel restrictions ease.”
Hong Kong is ranked higher than other Asian wealth management centres (Top 5):
- Ease of trading
- Quality of service
- Access to leading research & content
- Ease of on-boarding
- Range of investment options
Why prospects for PWM industry in Hong Kong remain strong:
- Proximity to mainland China and integration with GBA (Greater Bay Area)
- Strong IPO pipeline of mainland China companies
- Highest density of ultra-HNWIs in Asia
- Diverse range of investment options
Areas in which Hong Kong can improve:
- Find suitability requirements to be more difficult/time-consuming in Hong Kong than in other jurisdictions – 39%
- Providing source of wealth is the biggest regulatory pain point in Hong Kong – 52%
- On-boarding requirements take up too much time & administrative effort – 32%
Top Constraints of Growth:
- Challenging regulatory environment – 81%
- Difficulties with regards to travel restrictions – 81%
- Limited private banking talent pool – 56%
- Concerns over Hong Kong’s political situation – 56%
Digital offerings meet customer expectations: Client vs industry views
- Exceeding expectations – 8% vs 0%
- Meeting expectations – 39% vs 16%
- Mostly meeting expectations – 33% vs 32%
- Not meeting expectations – 16% vs 46%
- Well below expectations – 4% vs 5%
Preferred Delivery in Advisory Process: Digital*, Telephone, Video conference, In-person
- Investment research – 63%, 15%, 7%, 14%
- Anti-money laundering reporting – 60%, 22%, 7%, 9%
- Portfolio reporting – 58%, 11%, 12%, 19%
- Trading – 52%, 42%, 4%, 2%
- Portfolio review – 36%, 17%, 10%, 33%
- On-boarding – 33%, 8%, 23%, 35%
- Investment recommendations – 33%, 30%, 14%, 23%
- Non-financial advice – 27%, 35%, 8%, 28%
*Digital channels (mobile, web, tablet)
Client solutions: Currently Available, Planned for Next 2 Years:
- Portfolio statements view and interaction – 72%, 17%
- Electronic mailbox for client correspondence – 58%, 22%
- Educational material (videos, presentations, etc.) – 56%, 28%
- Access to global research – 50%, 39%
- Proactive alerts in relation to market events – 42%, 42%
- Compliant communication through 3rd party channels (e.g. WeChat, WhatsApp) – 31%, 25%
- Account opening, digital KYC & suitability check capabilities – 31%, 56%
- Financial goal advice planning – 28%, 44%
- Personalisation of the custom account (e.g. account naming, layout selection) – 19%, 31%
- Portfolio consolidation across other banks – 14%, 31%
- Portfolio construction, rebalancing & financial planning simulation tools – 8%, 64%
- AI-driven personalised investment recommendations – 6%, 39%
Top priorities for building digital capabilities:
- Increased focus on digital experience design for clients and RMs
- Enhanced connectivity of front office & back office with digital connectors
- Ability to allow interactions/transactions across digital and RM channels in a seamless manner
- Better customer knowledge, research and segmentation
- Investment in advanced data and analytics
Regulatory Areas with Most Resources Spent:
- Know your customers (KYC) & anti-money laundering (AML) – 97%
- Sales practices & suitability, including complex products – 89%
- Product due diligence – 54%
- Disclosures to clients – 43%
- Surveillance – 38%
- Regulatory reporting – 35%
- Cyber and IT security – 35%
- Tax transparency and reporting obligations (e.g. CRS) – 27%
- Online trading – 24%
- Best execution – 14%
- Governance & accountability – 11%
- Pricing – 8%
- Capital and liquidity management – 8%
- Conduct – 8%
- Extra territorial regulations (MiFID II, Dodd Frank, fiduciary rules, etc.) – 5%
- Cross-border data sharing – 3%
Professional Investor Rules if could be changed:
- Ability for sophisticated individual clients to opt out of suitability/disclosure requirements – 89%
- More flexibility in interpreting knowledge and experience requirements for corporate professional investors – 69%
- Revisions to financial thresholds – 25%
Business Functions to Increase Investments:
- Relationship Managers – 81%
- IT – 61%
- Product – 53%
- Other front office functions – 42%
- Compliance – 31%
- Risk – 25%
- Operations – 8%
- Other support functions – 6%
- Finance – 3%
- HR – 3%
Talent Departing Industry, Hong Kong or Both?
- Departing PWM industry – 8%
- Departing Hong Kong – 39%
- Both – 53%
Ranking of industries where PWM talent is leaving to:
- External asset managers
- Private equity
- Investment banking
- Other financial industries
- Insurance
- Virtual assets firms
- Other non-financial industries
Factors to make the Relationship Manager role more attractive:
- Remuneration – 94%
- Relief of administrative burden – 72%
- Reduce risk of regulatory liability – 50%
- Opportunities for personal development – 33%
- Clear career path – 19%
- More supportive IT infrastructure – 31%
Work from Home Arrangement: Front Office vs Middle & Back Office
- Rarely works from home (0-1 days a week) – 80% vs 47%
- Occasionally works from home (2-3 days a week) – 17% vs 45%
- Consistently works from home (4-5 days a week) – 3% vs 8%
The 2022 report is based on online survey of 36 of 42 members of Hong Kong Private Wealth Management Association (PWMA), 200 clients and industry executives, regulators and other industry stakeholders in Hong Kong.
About the Private Wealth Management Association
The Private Wealth Management Association is a Hong Kong-based voluntary association incorporated as a company limited by guarantee; it is separate from the Hong Kong Association of Banks. The main objectives of PWMA are: to better position Hong Kong as the private wealth management hub in the region by promoting and encouraging the growth and development of the PWM industry in Hong Kong and to help maintain Hong Kong’s status and competitiveness as a major financial centre; to provide a forum for members to discuss and exchange views on trends and challenges faced by the PWM industry and how to strategically position for these trends and challenges; to promote proper conduct, integrity and high standards of professional competence on the part of PWM practitioners; to provide industry representation and consultation in Hong Kong on PWM-related matters; and to serve as a channel for the private wealth management industry to maintain ongoing dialogue with governments, regulators, trade bodies and non-governmental organisations. The PWMA currently has 43 Full Corporate Members and eight Associate Members with a 12-member Executive Committee serving as the Association’s governing body. For more information about PWMA membership, please visit our website at: http://www.pwma.org.hk
About KPMG China
KPMG China has offices located in 30 cities with over 14,000 partners and staff in Beijing, Changchun, Changsha, Chengdu, Chongqing, Dalian, Dongguan, Foshan, Fuzhou, Guangzhou, Haikou, Hangzhou, Hefei, Jinan, Nanjing, Nantong, Ningbo, Qingdao, Shanghai, Shenyang, Shenzhen, Suzhou, Taiyuan, Tianjin, Wuhan, Xiamen, Xi’an, Zhengzhou, Hong Kong SAR and Macau SAR. Working collaboratively across all these offices, KPMG China can deploy experienced professionals efficiently, wherever our client is located.
KPMG is a global organization of independent professional services firms providing Audit, Tax and Advisory services. KPMG is the brand under which the member firms of KPMG International Limited (“KPMG International”) operate and provide professional services. “KPMG” is used to refer to individual member firms within the KPMG organization or to one or more member firms collectively. KPMG firms operate in 144 countries and territories with more than 236,000 partners and employees working in member firms around the world. Each KPMG firm is a legally distinct and separate entity and describes itself as such. Each KPMG member firm is responsible for its own obligations and liabilities. KPMG International Limited is a private English company limited by guarantee. KPMG International Limited and its related entities do not provide services to clients. In 1992, KPMG became the first international accounting network to be granted a joint venture licence in mainland China. KPMG was also the first among the Big Four in mainland China to convert from a joint venture to a special general partnership, as of 1 August 2012. Additionally, the Hong Kong firm can trace its origins to 1945. This early commitment to this market, together with an unwavering focus on quality, has been the foundation for accumulated industry experience, and is reflected in KPMG’s appointment for multidisciplinary services (including audit, tax and advisory) by some of China’s most prestigious companies.
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