The three reports map out clear opportunities for the territory to strengthen its role as an asset management centre - PwC
Hong Kong, 7 Dec 2015 - Today saw the launch of three reports by the Financial Services Development Council (FSDC) addressing different aspects of Hong Kong's financial services industry. PwC believes that, together, these three papers can substantially strengthen the territory's role as a leading international asset and fund management centre, as well as a fund domicile hub.
One report – Strengthening Hong Kong as a Retail Fund Distribution Centre – reflects similar views to those of asset managers and policy makers with whom PwC has engaged in separate discussions over the last two years. It underlines Hong Kong's potential to become the leading regional centre for fund distribution. It was accompanied by a paper looking at tax issues for Open-Ended Fund Companies (OFCs) and profits tax exemption for offshore Private Equity (PE) funds. The third report covers Limited Partnerships for PE funds.
"PwC welcomes these reports, which offer a clear road map for the development of Hong Kong's financial services industry," said Marie-Anne Kong, Asset Management industry leader for PwC Hong Kong. "We are optimistic Hong Kong can become the regional fund distribution centre in the medium term and a global fund distribution centre in the longer term."
PwC has seen a growing number of fund houses establishing a presence in Hong Kong. Many report difficulties in finding appropriate distribution partners. Likewise, local fund managers struggle to find international partners due to a lack of brand recognition overseas. Hong Kong can capitalise on opportunities in China and Asia through Stock Connect, the Mutual Recognition of Funds programme (MRF) and regional fund passporting schemes. But access to local distribution channels and investors is a roadblock that must be cleared.
"We see an opportunity to help asset managers resolve these issues and to support Hong Kong in its ambition to become a major asset management hub," says Kong. "According to the latest Securities and Futures Commission survey, more than 70% of fund distribution in Hong Kong is subscribed to by non-HK investors. This means that Hong Kong is already a distribution hub for international investors."
In PwC's Asset Management 2020 report, the firm expects asset managers to move centre stage as they increase their direct engagement with investors in order to understand and serve their needs. To achieve this, the report makes two main recommendations:
'Know your customer' (KYC) and investor onboarding processes must be simplified as far as possible to facilitate access to fund products. A central repository of data, for example, which distributors and fund providers could access to satisfy KYC requirements would be a significant step in this regard.
Make available a ready-made distribution channel that meets the needs of players who do not wish to develop their own platforms. The impact this could have in aiding distribution to local investors would be of enormous benefit to the industry in Hong Kong.
PwC also welcomed the FSDC's recommendations on tax neutrality treatment for OFCs and offshore PE funds: "We strongly agree with making the OFC framework tax neutral and clarifying exemption for offshore PE funds," said David Kan, Financial Services Tax Partner for PwC Hong Kong. "This will ensure that Hong Kong remains competitive with comparable jurisdictions."
In its third set of recommendations, the FSDC makes a case for an alternative legal structure for PE funds in the form of limited partnerships. PwC believes that these proposed changes to tax and regulatory regimes are necessary to develop Hong Kong into a private equity hub.
Should the developments put forward by the FSDC be successfully implemented, the benefits to Hong Kong, to asset managers and investors would be substantial. There would be greater fund flows and growth in assets under management, a boost to economic activity, a substantial increase in the funds management workforce and broader access for investors. PwC believes that these benefits, both immediate and longer-term, are there for the taking if Hong Kong seizes the opportunity.