Hong Kong Fund Management Industry Remains Robust

The latest Fund Management Activities Survey (FMAS) covering 2008 released July 28, 2009 by the Hong Kong Securities and Futures Commission (SFC) shows that despite a 39.3% year-on-year decline, the combined fund management business remained in an uptrend on a trailing three-year-average basis.

Due to the poor performance of financial markets around the world and net redemptions among investors, the combined fund management business in Hong Kong amounted to $5,850 billion as at the end of 2008, representing a 39.3% decline from 2007. However, the trailing three-year average of $7,212 billion still indicated underlying strength in the industry.

The international nature of the combined fund management business of Hong Kong was intact despite the financial turmoil. Non-Hong Kong investors contributed 64.2% of the total non-real estate investment trust (REIT) fund management business of $5,804 billion. This proportion has remained steady over the past five years. In addition, around half of the respondents have identified Hong Kong as their regional headquarters in 2008.

Below is a summary of market activities by categorisation of market players:

. Licensed asset management and fund advisory houses continued to contribute the largest proportion of the combined asset management business. Their aggregate asset management and fund advisory business amounted to $4,288 billion in 2008, down by 41.5% from 2007.

. Registered institutions reported a 34.2% drop in their aggregate asset management and other private banking businesses to $1,395 billion in 2008.

. Insurance companies reported assets under management of $121 billion in 2008.

Some other highlights of the survey include:

. Non-REIT asset management business recorded a decline in assets under management of 43.1% to $3,707 billion in 2008. Among assets in such business, 60.9% or $2,257 billion were managed in Hong Kong. This proportion has remained at above 50% since 2003. Most or 76.5% of the assets managed in Hong Kong were invested in Asia.

. Other private banking business fell by 33.5% to $1,287 billion in 2008.

. The fund advisory business dropped by 27.7% to $810 billion in 2008.

The FMAS report notes that the SFC has maintained ongoing dialogues and worked closely with industry practitioners, providing them with guidance to address the issues emerging from the financial turmoil. Circulars and letters were issued to remind the industry to step up their risk monitoring measures and to ensure adequate disclosures in offering documents and marketing materials of retail investment products. Industry practitioners were invited to briefing sessions to obtain practical guidance in this regard.

“The industry experienced one of the most difficult years in 2008,” said Mrs Alexa Lam, the SFC’s Deputy Chief Executive Officer and Executive Director of Policy, China and Investment Products. “However, it weathered the storm, dealt with the heightened investment risks and coped with the large volume of redemptions in an orderly manner. With robust standards and sound regulation, Hong Kong has again demonstrated its ability to manage market crisis.”

“Both the SFC and the industry have gone through a learning process in enhancing product disclosure following the onset of the financial turmoil,” Mrs Lam added. “We believe we have now overcome the issues and recently we have seen a pick-up in fund applications and authorisations. In the meantime, the SFC will continue to maintain active dialogue with industry practitioners to deal with regulatory issues as they arise.”

To further raise market standards and foster the development of the fund management industry in Hong Kong, the SFC is reviewing the codes on retail products with a view towards providing a flexible and up-to-date framework that is in line with the international practice, while offering protection of investor interest at the same time.

The findings show the SFC’s commitment to elevate Hong Kong’s exchange-traded-fund (ETF) platform to the status of the ETF hub in Asia. The SFC has undertaken a number of initiatives, including the signing and exchange of a Side Letter to a bilateral Memorandum of Understanding with the Taiwan Financial Supervisory Commission (TFSC) on 22 May 2009 to facilitate cross listing of ETFs in the two markets. As at mid-July 2009, 35 ETFs were listed in Hong Kong, offering a wide diversity in geographical exposure and asset classes. Trading in ETFs has been active with an average daily turnover of US$224 million in the first six months this year, exceeding Japan’s average daily turnover of US$188 million.

The report also notes that Hong Kong will continue to provide support and transfer skills to the Mainland while complementing the development of major Mainland cities. Supplement VI to the Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA VI) concluded on 9 May 2009 marked another breakthrough, allowing Hong Kong securities brokerages to form joint ventures in Guangdong with mainland firms for securities investment advisory business. In addition, the China Securities Regulatory Commission (CSRC) has agreed to include as a CEPA VI initiative the listing of Hong Kong stock ETF on the Mainland exchanges.

The FMAS has been conducted annually since 1999 to help the SFC assess the industry’s state of affairs for policy setting and operations planning. This year, a total of 351 respondents joined the survey. They consisted of 302 licensed asset management and fund advisory houses, 36 registered financial institutions and 13 insurance companies (Note 2).

End

Notes:

1. The term refers to the overall value of assets reported in the sub-sectors of asset management, fund advisory, private banking (broadly categorised as non-REIT fund management business), as well as SFC-authorised REITs.

2. Respondents fall into these categories: 1) asset management and fund advisory companies licensed under section 116 or 117 of the Securities and Futures Ordinance (SFO); 2) registered institutions under section 119 of the SFO, which are authorised financial institutions as defined in section 2(1) of the Banking Ordinance; and 3) insurance companies registered under Chapter 41 of the Insurance Companies Ordinance providing long-term business.

Article Source: Hong Kong Securities and Futures Commission Website

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