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Hong Kong’s international financial reputation has held fast during the economic crisis
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The global financial crisis has shown that Hong Kong has the right financial strategies in place, and the mettle not to waver when times are tough, according to the Alternative Investment Management Association (AIMA), a London-based international trade body for the hedge-fund industry.
Christophe Lee, AIMA Hong Kong and China Chairman, says the past year’s economic challenges have proven Hong Kong’s regulatory system to be robust and effective, enhancing the city’s status as an international financial hub.
While Hong Kong did not escape the crisis, which saw the global hedge-fund industry shrink by as much as 50 per cent, Mr Lee says that, in some ways, it has also been an opportunity for the city to shine.
“There are many attributes that Hong Kong has as a leading financial centre, among them the rule of law, low taxes, effective regulation, political stability and a legal system with cases stretching back hundreds of years. This has enabled Hong Kong to grow its financial system, attracting investment and, hand-in-hand with that, financial talent.
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Christophe Lee, AIMA Hong Kong and China Chairman, outlines the foundation
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“Over the past 10 years, Hong Kong has emerged as a gateway for investors to access the Chinese mainland, and for Chinese companies to access global capital. All this makes Hong Kong a great international financial centre.”
Steady Hand
Those attributes have held the city in good stead during the financial crisis, Mr Lee says. As evidence, he points out that Hong Kong “hasn’t had the major systemic failures” endured by other economies, including the United States.
“Overall, Hong Kong’s regulatory structure has held up to the crisis very well,” Mr Lee says. “The market’s view is that our regulator – the Securities and Futures Commission (SFC) – has been very well informed, adopting a consistent and pragmatic approach.
“Last October, Hong Kong was one of the few jurisdictions not to ban short-selling – a strategy that, in retrospect, only made it worse for the economies that did so. The most dangerous part about being a regulator is overreaction. The SFC did not overreact, and this has enhanced Hong Kong’s reputation as a place to do business.”
Year of the Start-up
A slew of hedge-fund businesses have set up in Hong Kong since the crisis. Data from Hedge Fund Intelligence show the 30 new start-ups last year have helped Hong Kong remain the largest hedge-fund centre in Asia, overseeing US$22 billion in assets as of December 2008. The city had 245 hedge fund managers by the end of last year, compared to 150 in Singapore and 145 in Australia.
When Mr Lee says that this could be “the year of the start-ups for Hong Kong,” he’s not talking so much about quantity but quality. When banks scaled back their proprietary trading, it released a rich pool of talent keen to start funds of their own. This “great batch of managers” lays the foundation for the Hong Kong hedge-fund industry’s next growth phase, he explains.
“The hedge-fund market globally has shrunk by 40 to 50 per cent from peak to trough. Fresh talent will certainly help rekindle growth in the industry. It is very encouraging to see new hedge funds in Hong Kong launched by experienced and talented professionals. They are also adding an interesting mix of strategies, bringing variety to the traditional dominance of long-short equity funds.”
There is talk that overseas investors are planning their return to invest in Asian hedge funds. A number of global institutions recognise that they are under-invested in Asia, and Mr Lee says this is an opportune time to add Asian exposure.
“We’ve heard that a number of hedge funds are exploring leaving Europe for various reasons, including the high tax in the United Kingdom. We do see a long-term trend of global hedge funds establishing a presence in Asia. You cannot be a global fund manager without having an office in Asia, and Hong Kong would have to be at the top of the list.”
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Where the Jobs Are
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An upturn in financial services has propelled job growth in Hong Kong for the second quarter in a row.
The latest Robert Walters Asia Jobs Index shows employment advertisements in Hong Kong were up 11.2 per cent in the second quarter, following a 9.1 per cent rise in Q1. This was the highest growth in Asia, driven, the recruitment firm says, by need in the financial services sector due to increased IPO activity.
In Hong Kong, a fairly cautious “wait and see” approach adopted by most organisations earlier in the year has been replaced by “some return of confidence,” with more companies seeking listings on the Hong Kong Stock Exchange in June than in the entire previous 12 months. This has had a knock-on effect in financial services recruitment, the firm says.
“The strong performance of Hong Kong’s stock market has encouraged the financial services sector to start planning for growth, but the emphasis has been on efficient expansion,” says Matthew Bennett, Managing Director at Robert Walters Hong Kong. “While the banks are making a number of selective hires, they appear to be exercising a certain degree of caution, and we would expect this to continue for a while yet. Our experience shows that commerce and industry tend to lag behind the banks, which suggests that we will not see large increases in overall advertising activity for the remainder of the year.”
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Another trend is the number of Chinese fund managers and other financial entities, including stock brokers, opening in Hong Kong. One major mainland player, Beijing-based Harvest Fund Management, recently absorbed the Asian retail capabilities, personnel and assets of Deutsche Asset Management, via a newly formed Hong Kong entity called Harvest Global Investments.
Dual Gateway
Mr Lee says this shows that Hong Kong, in addition to being a springboard to the Chinese mainland, is also the first step for mainland companies wanting to build a global operation.
This “dual gateway platform” is something Hong Kong has been very conscious of building, Mr Lee adds. “The SFC has worked towards that, and initiatives from the government’s Closer Economic Partnership Arrangement with the mainland have made it happen. Eventually, the settlement of the renminbi in Hong Kong will add to that.” Hong Kong, he says, has huge strategic value to the mainland’s financial markets. It serves as a place where the mainland can conduct capital-market experiments in an environment that operates according to international rules, while providing a business model that can be adopted on the mainland.
He describes this as “a powerful trend.”
“We know that China is very keen to open up internationally, and Hong Kong offers it that global experience. And from a foreign investor perspective, Hong Kong is not only a platform to the mainland, but a gateway to North Asia. We see both of these factors forming a powerful trend, enhancing Hong Kong’s role as a hub for attracting liquidity from both international and Chinese investors.”
Related links
Alternative Investment Management Association (AIMA)
Asia Jobs Index
