Hong Kong: Asia's Premier Asset Management Centre ... · Still far behind London and New York 63 1,100 63 26 71 442 1.3 Hong Kong 10 53 4 28 220 1.1 Singapore 400 11,500 (New York)

Peter PangDeputy Chief Executive

Hong Kong Monetary Authority

8 May 2012Presented at Treasury Markets Association Luncheon

Hong Kong: Asia's Premier Asset Management Centre Opportunities for the Treasury Market

2

“Twin engines” to propel Hong Kong to new heights as international financial centre

Asia-Pacific Region

Premier Asset Management centre

Propelling HK’s development as

Offshore RMB centre

Fast economic growth and wealth creation

+

Financial market liberalization in China

1. Hong Kong’s asset management industry: where do we stand?

2. How far can we go?

� Favourable macro trends

� Hong Kong’s competitive edge

3. Opportunities for treasury market participants

4. Joint efforts by public and private sectors to promote Hong Kong as Asia’s premier asset management centre


3








4

5

Hong Kong’s strong foundation as an asset management centre

World leader in equity Initial Public Offering (IPO)

Leading hub for hedge funds investing in Asia

Second largest hub for Private Equity funds in Asia

Asia’s private banking hub

Premier offshore RMB business centre

Largest hub for QFII and QDII managers

Hong Kong and Mainland dominated global IPOs

26.2

16.3

31.4

19.2

10.7

36.1

HKEx Shenzhen Shanghai NYSE London NASDAQ

US+UK(US$61.3bn)

China(US$78.6bn)

6

IPO funds raised in 2011

Source: Exchange websites, Dealogic

7Source: AsiaHedge

� Hong Kong currently hosts the largest pool of hedge fund assets that are invested in Asia.

� No.1 in terms of number of start-up hedge funds launched in Asia in 2011.

Leading hub for hedge funds investing in Asia

38.9

31.5

2419.5

11.7 10.8

4.6 3.6

0

5

10

15

20

25

30

35

40

45

Hon

g Kon

g

Austra

lia

US-b

ased

HF w

ith A

sian

stra

tegi

es

Singa

pore

UK-b

ased

HF w

ith A

sian

stra

tegi

es

Japa

n

Oth

ers

Chi

na

Asset Size of Hedge Funds invested in Asia

(by location of manager)

US$ billion

Second largest hub for private equity funds in Asia

Hong Kong ranked second in Asia with US$63 billion CuM in 2010, accounting for 21.6% of the Asia’s total, only slightly behind Mainland China's 22.6% and ahead of Japan's 14.2%.

Mainland China and Hong Kong together manage nearly half of the private equity funds in Asia.

Ongoing financial liberalization by Mainland authorities will attract more overseas PE capital into the Mainland, …

… and Mainland enterprises will also use Hong Kong PE managers to seek more PE opportunities overseas.

The strong IPO market also provides favourable exit options for PE funds.

Source: AVCJ 8

9

Growing HNWI population in Mainland China and Hong Kong

Hong Kong as preferred choice for Mainland Chinese HNWIs, given their home bias nature.

Superior private banking platform and sound investor protection framework

Political and economic stability makes Hong Kong the ideal private banking centre for clients.

Hong Kong’s stable and flexible financial platform can offer private clients a full array of capital market products.

Asia’s private banking hub

10

� Largest pool of offshore RMB liquidity

� Largest offshore RMB bond market (dim sum bond market)

� Global hub for RMB trade settlement

� Vibrant CNH market of increasing depth

� Unique RMB clearing and settlement system with a global footprint

Premier offshore RMB business centre

11

Largest hub for QFII and QDII managers

Source: CSRC

QFII

� China has granted QFII qualifications to more than 150 foreign institutional investors.

� More than 100 of them have offices in Hong Kong already.

R-QFII

� Since Dec 2011, China has granted R-QFII qualifications to 21 managers located in Hong Kong.

QDII

� More than 30 mainland fund managers have been awarded with QDII qualifications.

� More than 15 of them have set up offices in Hong Kong since 2009.








12

Still far behind London and New York

63

1,100

63

26

71

442

1.3

Hong Kong

10

53

4

28

220

1.1

Singapore

400

11,500 (New York)

799 (New York)

891

10,867

26.2

U.S.

4,900Domestically sourced (US$ billion) 2010

343 (London)Hedge funds AuM(US$ billion)*

67ETF AuM 2010 (US$ billion)

173

7,000 (London)

PE/VC funds Capital Under Management (2010) (US$ billion)

employment by PE/VCs

935Mutual funds AuM 2010 (US$ billion)

7.4Asset under management(US$ trillion) 2010

U.K.

13Source: Black Rock, BVCA, Cerulli Associates, MAS,

SFC, The City of New York, TheCityUKNote: Hedge Fund AUM: Hong Kong and Singapore are 2010 figures; UK and US are 2011 figures

14

Hong Kong’s asset management industry needs to increase diversity and value-add

Source: TheCityUK, Investment Company Institute (U.S.),

Investment Management Association (U.K.), SFC

10%Core asset managementactivities

Sales & marketing

Fund administration

Others

27% 28%

Hong Kong U.K.

Job functions in asset management industry

(% of industry employment)

Note: Figures of HK are employment in fund management business. Figures of the U.K. are based on staffs directly-employed by the asset management industry, and exclude employment from outsourced services. Figures of the U.S. are based on staffs employed by the mutual

fund industry (i.e. mutual funds, closed-end funds, ETFs, unit investment trusts and their service providers).

U.S.

Core asset management activities include fund management, research and trading/dealing.








15

Source: 2011 Asia-Pacific Wealth Report, Capgemini and

Merrill Lynch Global Wealth Management16

3.3 2.8 3.13.4

3.3

3.1

0.0

1.0

2.0

3.0

4.0

North America Asia-Pacific Europe

2007 2010People (million)

3% growth 18% growth0% growth

Pool of high net worth individuals (HNWI) in Asia growing

Growing need for quality

asset management services

230

176

154137

7868

54 50

27 22 175

0

50

100

150

200

250

US

Japa

nEur

ope

Austra

liaKor

eaTai

wan

Brazi

lM

alay

sia

Indi

aTha

iland

Chi

naR

ussi

a

% of GDP Institutionalized assets

(2010)

Number of HNWIs by region

Note 1: “Institutional asset” is defined to include pension funds, insurance assets and mutual fundsNote2 : HNWI are defined as those having investable assets of US$1 million or more, excluding primary residence, collectibles, consumables ,and consumer durables

Source: Goldman Sachs

17Source: Deloitte and Oxford Economics

Hong Kong benefits from China’s phenomenal growth and home bias of Mainland investors

118515

3,758

390

1,198

7,298

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

1990 2000 2011

Trade and Foreign Direct Investment GDP

US$ billion

Growth in HNWI population and wealth

(Mainland China and Hong Kong)Growth in Trade and FDI

2.0

4.23.7

13.9

Number of HNWI (million) Wealth of HNWI (US$ trillion)

2010 2020 projection

Source: IMF, HKMA

Note: “Institutional asset” is defined to include pension funds, insurance assets and mutual funds

18

Demand for quality financial advice rises along with higher income

0

50

100

150

200

250

0 10,000 20,000 30,000 40,000 50,000 60,000

GDP per capita (US$, 2010)

Institutionalized funds

(% of GDP, 2010)

US

JapanEurope

Australia

Korea

TaiwanBrazil

Malaysia

Russia

China

Thailand

India

• In 2011, China’s GDP per capita reached US$5,400

• The amount of institutionalized assets is less than 20% of GDP (as of 2010)

• The IMF predicts China’s GDP per capita will reach US$9,153 by 2017.

• This is nearing to Malaysia’s GDP per capita in 2011 (US$9,700), where the institutionalized assets as share of GDP is around 50%.

• According to Cerulli Associates, Mainland China’s mutual fund industry’s AUM will reach US$716 billion by 2015, from just over US$400 billion in 2011.

Source: IMF, Goldman Sachs

19Source: Goldman Sachs

Emerging Asia to attract more global capital, as economy size grows

Asia-ex-Japan’s market share of the world

% of world total

16%

21%

8.00%

27%31%

13%

37%40%

22%

0%

10%

20%

30%

40%

50%

60%

70%

GDP Equity Market Cap MSCI World Wgt

2010 2020E 2030E

rising share in global economydeeper capital markets

more portfolio allocation

The rise of emerging markets, especially Asia, is changing asset allocations globally.








20

21

Hong Kong’s fundamental strengths

Fundamental strengths

Rule of lawOpenness

Simple tax systemRobust regulatory regime

Deep talent poolAdvanced financial

infrastructure

First mover advantage

Developing Renminbibusiness

since 2004

Uniqueadvantage

Mainland China as a hinterland

Source: CSRC, SAFE 22

HK stands at the doorway of capital flows between China andthe rest of the world

QF

II

QD

II

As of March 2012:96 QDII’s granted

Approved QDII: US$75 billion

As of March 2012: 158 QFII’s granted

Approved QFII: US$24.5 billion

As of January 2012:21 RQFII’sgranted

Approved RQFII:RMB20 billion

R-Q

FII

MAINLAND CHINA

REST OF THE WORLD

• Three main bridges to drive capital flows with the rest of the world:

1. Trade, 2. Direct Investments 3. Portfolio Investments

• On portfolio investments:• QFII• RMB-QFII• QDII

Net RMB trade Net RMB trade

inflows enlarge RMB inflows enlarge RMB

liquidity poolliquidity pool

Investment Investment

opportunities opportunities

encourage RMB trade encourage RMB trade

settlementsettlement

RMB trade settlement centre

RMB wealth management

centre

RMB financing centre

Diversification of Diversification of

RMB financial RMB financial

productsproducts

Expanded Trade Settlement Scheme

RQFII & Mainland interbank bond market FDI

23

Three bridges forming a virtuous circle of RMB flows

Next phase is to build critical mass for HK’s RMB capital market.

The development path is multi-dimensional –

24

Locality

Capital markets

Key players Fund raisers, investors, intermediaries

Bond market, bank loans, equity market, wealth management products

Activities within HK and its interface with the restof the world

Deepening Hong Kong’s RMB capital market








25

Role: To bring the demand and the supply sides together

26

Asset management industry and treasury markets are intertwined

� Seek value assets from the market to grow their asset base

� Manage the asset-liability balance, risk-hedging functions and cash flows for their companies

Asset Managers Treasurers

Common need: deep and efficient capital market in HK

Intermediaries

27

Being the premier asset management centre in Asia brings tremendous benefits to the treasury industry

↑↑↑↑ Portfolio investment inflows

↑↑↑↑ Size and liquidity of capital markets

↑↑↑↑ Investment products

↑↑↑↑ Financial products and hedging instruments

↑↑↑↑ Financial intermediaries activities

Asset-liability management

Investment/trading

Funding/cash management

Risk management

Interest rate

liquidity

Forex

Support clients’ treasury operations

Premier Asset Management Centre

Treasury Market Operations








28

29

“Two-pronged” strategy

Platform Building

OutreachCampaign

HKMA has been taking a proactive “two-pronged” strategy:

� Outreach campaigns: to promote Hong Kong's strengths as an international asset management centre

� Platform building: to address issues impeding Hong Kong’s development

30

Service Providers

Framework of marketing strategy

End Investors -Asset Owners

Intermediariesand Managers

Private WealthPension FundsEndowments/ FoundationsInsurance Sovereign Wealth FundsCentral Bank

Investment AdvisorsConsultantsFund of FundsMoney ManagersHedge FundsPrivate Equity

Fund AdministratorCustodian BanksDealer BrokersLawyersAccountantsTrust Services

We are constantly refining our outreach strategies, taking into account the latest market trends and the feedback from our discussions with the industry

In particular, we have categorized our marketing targets into three broad groups:

Asset allocation process:

End Investors-asset owners dictate business flows for asset managers

Service providers follow the capital flows of the other players

31

Ongoing enhancement of our platform

Tax

Hong Kong has a simple, reliable and low tax system

Only three direct taxes on profits, salaries and property

No sales / withholding / capital gain / dividend / estate taxes

Rapidly expanding Double Tax Treaties network

Modernization of trust law

FSTB just launched a 2-month consultation on the detailed legislative proposals on Trust Law reform in March 2012

Review of private banking regulations

HKMA/SFC are reviewing the regulations with a view to adopting requirements that are more compatible with the conduct of private wealth management business

32

Ongoing enhancement of soft infrastructure

Increase in supply of international schools

With recent allocation of greenfield sites to four international schools, additional 3,500 school spaces expected from school year 2012-2013 onwards*

Pipeline of new office spaces gradually coming through

Kowloon East under development into another central business district

Air quality

*Legislative Council Panel on Education: Provision of international school places [LC Paper No. CB(2)968/11-12(03)]

Role of the private sector:

Contribute to the policy discussion by providing feedback

Diversify product innovation while maintaining high investor protection standards

Train talents to ensure strong pipeline of financial professionals to meet growing demand

TMA can play a key role in enhancing Hong Kong’s competitiveness as an international financial centre

e.g. launched spot USD/CNY(HK) fixing in 2011, standardization of documentation for RMB trade-related activities etc

Working groups: RMB market development, ETF etc.

New working group on corporate treasury industry developments

Continuous teaching programs to train local talents

33

Promoting and Enhancing HK’s competitive edge as Asia’s Premier Asset Management Centre

Thank you

34

Documents

Hong Kong: Asia's Premier Asset Management Centre ... · Still far behind London and New York 63 1,100 63 26 71 442 1.3 Hong Kong 10 53 4 28 220 1.1 Singapore 400 11,500 (New York)