Family offices play an important role in Hong Kong as powerful investing entities, and in a competitive and fast-moving Asia, family offices and the assets they possess will hold even greater importance to the city.
As a longtime leading financial hub in Asia, Hong Kong has a lot in its favor, along with the family offices located there.
Access to mature and robust capital markets, a favorable tax and regulatory environment, and ample resources to serve family offices are all available in the territory.
With over 7 million people, Hong Kong has long been a "best of both worlds" where East and West come together, which I can attest to as a resident myself for nearly a decade.
This former British colony and current semi-autonomous Chinese territory offers outsiders access to lucrative opportunities in the region while recognizing Western regulatory frameworks for investing.
Similarly, Hong Kong attracts China’s wealthy who seek access to investment products and opportunities beyond the mainland.
While Hong Kong has long been a global financial center, the city lost ground (in particular to Singapore) in recent years, primarily from capital outflows and COVID lockdowns and travel restrictions.
But with the pandemic in the rearview mirror and the city once again open for business, Hong Kong reclaimed its top spot as Asia’s leading financial hub and ranking third globally behind New York and London.
George Chen, managing director and head of Hong Kong Office of The Asia Group, share his thoughts on the recovery:
“In fact, we do see many financial services industry professionals are returning to Hong Kong from Singapore, Dubai and other places where they stayed for some time during the COVID-19 pandemic.”
And as the city continues to regain its footing, family offices in Hong Kong are certainly welcomed.
The competition is still there, and Hong Kong political and business leaders will work to keep the city attractive to the outside.
Retaining and bringing in new family offices is of course an area of focus, and the government-run InvestHK has set up a family office division to aid in those efforts.
Stephen Phillips, Director-General of Investment Promotion at InvestHK, shared the following:
"The establishment of our FamilyOfficeHK team is a milestone in InvestHK’s endeavour in promoting Hong Kong as an ideal location in which Hong Kong and overseas-based enterprises can set up a family office presence.
I believe that the team will further promote Hong Kong’s unique advantages and offer one-stop services to family offices that are interested in setting up a base in Hong Kong, and consequently reinforce Hong Kong’s position as a prime family office hub in Asia."
Efforts have been made to attract wealthy families in in Europe, the Middle East, mainland China, and the rest of Asia.
And their efforts have already yielded early success.
The team has already helped 14 family overseas family offices set up in Hong Kong in the last year, and another 50 are planned to be set up.
Granting permanent residency to wealthy individuals is one of the methods, and through the Capital Investment Entrant Scheme, the initiative offers fast track residency to people who make an investment of HK $30 million to obtain residency.
Through this, the local government anticipates HK $24 billion of investments.
This incentive is not only aimed at the wealthy around the world, but also and in large part aimed at Mainland Chinese.
Victor Ai Kuiyu, executive director of Hong Kong-listed financial firm DL Holdings, shared his thoughts:
“The upcoming Capital Investment Entrant Scheme is going to be very important to attract wealthy customers to set up family offices in Hong Kong. We have seen a lot of clients express interest in moving to Hong Kong via this scheme because it is very simple and easy.”
For nearly three years, Hong Kong enforced strict measures against COVID-19, more or less in line with guidelines set for the mainland.
While it kept COVID cases and death rates relatively low, the stringent approach took a toll economically.
Lockdowns, travel restrictions, and lengthy quarantine periods made it harder to conduct business, and many wealthy individuals left as a result.
Even though has since Hong Kong fully reopened, all that time “closed” opened up opportunities for rival financial hubs.
In December 2022, legislators introduced a bill providing tax concessions for investments managed by eligible single-family offices
Known as the Inland Revenue (Amendment) Bill 2022, the exempts family-owned investment holding vehicles and their portfolios of special purpose entities from tax on transactions carried out by a Hong Kong-based family office.'
A government state on the bill said the following:
"The multiplier effect of attracting more family offices to set up and operate in Hong Kong could be tremendous, including generating increased demand for financial and related professional services, creating more high-quality employment opportunities, and channelling substantial capital to Hong Kong's capital markets, thus benefitting the economy as a whole.”
Additionally, another incentive is exemption of tax on profits generated from eligible investments by single family offices.
These changes will “make the regulatory regime more flexible, provide focused talent development initiatives, and enhance coordination between the different services that family offices need,” according to Sami Abouzahr, Hong Kong head of investments and wealth solutions at global financial institution HSBC.
Learn more about the tax legislation for family offices in Hong Kong.
Hong Kong continues to be an ideal investment market in the Asia-Pacific region for family offices because of its "deep liquidity, diversified asset classes and investible products", as discussed in a financial forum organized by the South China Morning Post.
Grace Tam, chief investment adviser, Hong Kong, and managing director at BNP Paribas Wealth Management, shared the benefits of being established in the city:
"For family offices in Hong Kong, the good thing is that they can access really world-class private-equity and infrastructure funds through private banks and wealth management companies in the city."
Additionally, the city’s close ties with the mainland have enabled it to act as an investment hub into and out of China, enabling businesses to tap into a number of opportunities in the Guangdong, Hong Kong, Macau Bay area and the rest of the region.
Opportunities
Eva Law, founder/chairwoman of the Association of Family Offices in Asia, pointed out that roughly 90% of investments in venture capital by family offices in HK and neighboring regions come from the new generations of family heirs. And according to a UBS report, these younger family leaders are heavily investing in generative AI, healthcare, and green technology.
Additionally, Law notes the importance of establishing connections with decision makers and gatekeepers of family offices, as the heads of the entities (especially smaller ones) are often the decision-makers for their investments.
Hong Kong is an ideal place for family offices to manage their charity work, noted according to Alice Chiu Tsang Hok, as she described it as "a transparent market with many financial professionals who can help charities achieve the best returns on donations they receive."
Campden FB also noted Hong Kong's "long and impressive history of philanthropy", a place home to some of the world’s greatest philanthropists. The city has long promoted private investment in welfare and fostering a culture that promotes individual social responsibility.
As family offices in Hong Kong maintain their presence and new ones establish themselves, there is increased demand for related services.
While there is certainly qualified to talent serve single- and multi-family offices, there's just not enough of it.
The Family Office Association of Hong Kong (FOAHK) warns of a 'talent gap' that could hinder growth.
FOAHK Chairman and Raffles Family Office founder Chi Man Kwan said that despite a large financial services industry, family offices need to develop specialized staff to excel.
Chi also noted that the growth and staff compensation are big challenges:
"In Hong Kong, …, there is definitely a shortage of talent simply because we are growing - the amount of billionaires that are being born every 48 hours."
"Sometimes it might be tough for [family offices] just to find the right people, and at the same time to afford them, because the costs play a big part as well. These professionals are not cheap."
By the end of 2021, half of all family offices in Asia-Pacific planned on increasing staff over the next year, according to The Asia-Pacific Family Office Report.
The most common reasons for hiring were to expand family office operations (23%), bring more services in-house (14%), and fill gaps in expertise (11%).
As if it was hard enough to keep up with compensation and the sector growing as is, strict COVID-19 measures up until recently didn't help matters, as financial services expat talent and graduates left Hong Kong in response.
The talent shortage for family offices is so pressing that recruiting talent is more important to address than financial concerns like tax domiciling, according to Professor Heinrich Liechtenstein of Barcelona's IESE Business School:
"You need an excellent team. How to attract the best team... is probably the biggest challenge for family offices."
Acquiring family office talent requires “broader and more dynamic skill sets,” in particular around technology.
Patrick Tsang, President of single-family office Tsangs Group, shared his view:
"Technology plays a crucial role in our future development. To attract global investors, Hong Kong needs to provide more support and incentives to talents with the knowhow in areas such as biotech, Web 3.0, fintech, and green tech.”
According to Kwan, family offices’ focus on ESG will require more experience in impact investing, private equity, and managing digital wealth.
Recruiting talent and putting together that excellent team is easier said than done, especially with family offices competing for the same limited talent.
With talent shortages and high staffing costs a reality, Hong Kong family offices must be resourceful in their talent acquisition, leveraging a healthy mix of local and international talent…. and technology.
With a strong emphasis on technology, family offices truly need specialized expertise in the space.
Migrating and displaying complex data sets, upgrading and implementing software, as well as developing and testing applications are many of the areas that family offices in Hong Kong lack the talent.
Finding and developing in-house talent is one way, but an alternative approach is to hire third-party specialists in family office technology support like Empaxis.
Through my career in technology and professional services delivery, I have long been a proponent of “boots on the ground”, stressing the importance of service providers being geographically close or at least have an established presence in the country or region they serve, allowing for quick and even in-person collaborations.
And Empaxis has boots on the ground in Hong Kong, providing local support to family offices, fintechs, and banks and investment firms in the above areas of service.
Formed out of a family office, Empaxis understands the unique challenges these firms face, and we have the operations and technology wherewithal to carry out the complex and tedious projects that require niche expertise.
For a long time, Asia's family offices typically avoided outsourcing, instead preferring to hire relatives and doing so at a higher rate than other markets.
Hong Kong and Mainland China are no exception.
A sense of trust is the reason for this approach, which is understandable to an extent, but if the relative isn't truly qualified for the job they hold, then it's not the most efficient use of resources.
Nick Hayward, director at Campden Wealth, further illustrates the phenomenon:
“The biggest place where is a problem is China, because at the moment, families - particularly one with the patriarch or matriarch still there - insist on hiring people they know over a professional.”
The pandemic showed family offices in Hong Kong how important it is to have backup resources, and for that reason, firms are slowly opening up to outsourcing.
Trading is one of those functions being outsourced. Driven by intense competition, new regulation, and a push to streamline costs, family offices have more incentive to partner with third-party specialists.
Reflecting the change in attitudes toward outsourcing in the region, a Hubbis Digital Dialogue post-event survey revealed that a majority (85%) of respondents agreed that a family office should outsource middle- and back-office outsourcing to a third party.
And with this change in attitudes, family offices in Asia and globally turn to Empaxis outsourcing services for their middle and back office..
Outsourcing allows firms typically allows firms to access expertise at a lower cost, while allowing the business to focus on revenue-generating core competencies.
As more and more wealthy families in Hong Kong realize these benefits, they will take adopt the outsourced model for their operation.
Another solution to talent shortages (and a way to free up internal capacity) is leveraging automation technology.
Manual and routine processes can easily be automated, allowing work to get done faster, more consistently, and with great accuracy.
One particular area to make use of automation is alternative investment statement processing.
As family offices in Hong Kong invest in alternative asset classes like private equity and venture capital, they can surely benefit from streamlining the processes.
Outsourcing providers like Empaxis also implement these automated workflows.
In light of the competition, Hong Kong still enjoys a position of prominence as a major financial center.
Fully reopened, the Chinese territory has regained its footing as Asia's leading financial hub, taking new measures to attract more family offices to the city.
Tax incentives, a favorable regulatory environment, and access to a broad range of investment classes and opportunities are some of the reasons family offices or remain or relocate to Hong Kong.
Just as more family offices set up, they will require services to support them (investing, accounting, taxes, IT, compliance, operations, etc.), but with the growth of family offices in the region, there isn't enough talent to serve them.
For those reasons, outsourcing, automating, and integrating systems are increasingly popular ways to work around labor shortages, completing workflows in a time- and cost-efficient manner.
Indeed, family offices in Hong Kong have a lot going for them and can do a lot more with a reliable partner like Empaxis, locally present in the city, supporting their middle and back office and digitally transforming their workflows.
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