International accounting consultancy KPMG today released its latest survey on the Hong Kong fund industry, indicating that Hong Kong is expected to maintain its status as a major asset management center in Asia over the next five years, driven by opportunities in the mainland market, an aging population, and mandatory provident fund reforms that will create more business opportunities.
The report titled "Vision 2020: The Future of Hong Kong's Fund Management Industry" was co-authored by KPMG and the Hong Kong Investment Funds Association, targeting members of the association and covering most local fund managers.
The report points out that with the launch of the Shanghai-Hong Kong Stock Connect and the mutual recognition of funds between the mainland and Hong Kong, most surveyed fund management companies expect that the mainland will account for a larger share of their customers and managed assets in the next five years. However, at the same time, the surveyed investment professionals agree that Hong Kong's unique advantage in accessing the mainland may diminish in the future, as Shanghai and Singapore are also strengthening the development of their own financial centers.
The Chairman of the Hong Kong Investment Funds Association, Pan Xinjian, stated, "Five years from now, Hong Kong will no longer be the only gateway to mainland China. China is opening up, and despite various uncertainties, asset management managers may no longer need to go through Hong Kong to access the mainland due to various benefits."
The report indicates that regardless of how the relationship between Hong Kong and the mainland develops, Hong Kong must continue to benchmark itself against other regions and global fund management centers, and strengthen its connections with other markets, including bilateral relations and fund passporting initiatives.
The report also highlights risks that Hong Kong needs to address, including its continued role primarily as a distributor of fund products rather than a manufacturer; most funds are still registered offshore. Additionally, signs of tension have emerged in certain areas, such as talent pools, regulation, and business costs driven up by high rental costs and compensation.
The rapidly aging population will drive demand for investment types and higher returns to support longer retirement lives, while mandatory provident fund reforms will provide significant opportunities for this industry. However, the report indicates that a talent shortage is expected across all different job types, particularly in legal and compliance departments. Especially with the promotion of the mutual recognition of funds between the mainland and Hong Kong, a number of mainland companies established in Hong Kong are currently competing for the limited supply of professionals.
The report also shows that another challenge facing the fund industry is the adoption of electronic channels. Currently, fund distribution is largely limited to intermediaries. Electronic channels provide a new, efficient, and easily measurable way to penetrate the market and promote to customers, potentially lowering costs for end investors. Regulatory measures also need to be updated to allow companies the operational flexibility to meet the evolving demands of customers through emerging technology platforms.