Hong Kong’s private wealth managers are growing more pessimistic after a sharp drop in assets under management as more clients seek to park their money elsewhere, a survey by the Private Wealth Management Association found.

In a forecast, 15% private wealth managers, up from 8% last year, predict growth in assets under management will be below 5% over the next five years, according to the Hong Kong Private Wealth Management report, jointly conducted with KPMG China. The share of those who anticipate assets will expand more than 10% slid to 18% from 25%.

The more “subdued” outlook comes amid increased geopolitical tension, which after the economic environment was the second-biggest concern among the firms surveyed.

Fund inflows to Hong Kong were HK$121 billion ($15.5 billion) in 2022, a decline of almost 80% from the previous year. The total assets of Hong Kong’s private banking and private wealth management business were HK$8.97 trillion at the end of 2022, down 15% from the previous year as markets declined.

“The assets under management has dropped,” said Paul McSheaffrey, senior banking partner at KPMG China, at the PWMA’s annual wealth management summit in Hong Kong. “That drop is highly correlated to the market.”

‘Multi-Shoring’

Another “significant trend” is multi-shoring — opening accounts in two or more jurisdictions to spread risk and diversify investment, according to the PWMA. Rival Singapore has been one of the winners, with the share of clients with accounts also booked in the city state rising to 73% from 64% last year.

“While this trend may be considered concerning on the face of it, our discussions with the industry on the results indicate that the impact is less significant,” the association said. “Many noted that what is critical is that the relationship and assets are still being managed from Hong Kong with the opening of accounts being part of a risk diversification strategy of using dual booking centres across Hong Kong, Singapore and other locations.”

The report is based on a survey of PWMA member institutions and their clients. Almost 80% of member firms, 33 out of 42, responded to the PWMA survey, as well as more than 200 clients, according to the group.

Hong Kong scores highly compared to other major wealth hubs in areas such as ease of onboarding and trading. The only area where it doesn’t take top spot is political stability, falling behind both Singapore and Switzerland, the report showed. This underscores the importance of the industry working with other stakeholders to articulate the stability of Hong Kong as a wealth hub, it said.

On a more positive note, the ongoing wealth creation in mainland China will continue to be a source of growth for the industry, the report said.

“If I look at the growth that we’ve seen at UBP over the course of the last five to six years, two thirds has come from Greater China,” said Michael Blake, chief executive officer for Asia at Union Bancaire Privee. He “fully expects” that to be the case also in the next 5 to 10 years.

There is a concerted effort from the central government to de-emphasize real estate and diversify into other assets, he said, and more flows are expected to come through Hong Kong.

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