T he fallout of the pandemic may have cooled economic growth, but the battle to attract global wealth is heating up. On 24 March, some of the world’s wealthiest families and family offices gathered at the Hong Kong Palace Museum for the Wealth for Good summit, an event positioning Hong Kong as a hub for world-leading, future-focused investment. future-focused investment.
The forum was also an opportunity for the Hong Kong government to announce a series of finance-friendly initiatives, including tax rebates and a new Hong Kong Academy for Wealth Legacy, and to secure fine-art storage facilities, all designed to attract high-net-worth individuals to the city state.
Some 2,500 kilometres to the south, Singapore is staking its own claim to Asia’s wealth management crown. The city was home to around 1,100 single family offices at the beginning of 2023 according to the Monetary Authority of Singapore, and a report published in June by Henley & Partners suggests that number is likely to increase with 3,200 high-net-worth individuals forecast to become Singapore citizens before the end of the year.
These new arrivals will be subject to tough new residency requirements, however. In March, the Singapore Economic Development Board, announced that investors seeking permanent residence would need to put at least USD$7.4mn in a business or $18.5mn in an approved fund. Anyone looking to set up a family office, meanwhile, would need to deploy at least $37.5mn across four government-designated asset classes.
Both Hong Kong and Singapore have launched open-ended fund vehicles over the last five years, allowing investors to incorporate funds in the region. Rapid take-up, particularly of Singapore’s “Variable Capital Companies (VCC) scheme”, not only represents a direct challenge to established offshore jurisdictions, but could draw financial expertise to Asia.
Shifting Asia’s centre of financial gravity
The race to become Asia’s wealth capital is entering a critical phase. Millennials and Gen Zs across the continent are expected to inherit more than $15tn over the next decade. “Once this liquidity is created, many of these new wealth owners may want to diversify their assets outside the family business,” says Angie Han, Head of Wealth Planning at Pictet Wealth Management, South Asia.
Once this liquidity is created, many of these new wealth owners may want to diversify their assets outside the family business
Angie Han, Head of Wealth Planning,
Pictet Wealth Management, South Asia
This creates opportunities to attract investment – Hong Kong is also offering residency to foreigners spending tens of millions in local assets – and provides a framework for longer-term economic development. “Governments are well aware of the potential for growth in the asset and wealth management industries, in particular the cluster and economic multiplier effects it has,” says Sally Wong, Chief Executive Officer of the Hong Kong Investment Funds Association. “It can foster the development of the whole value chain, from the front office to middle and back office, as well as professional firms and service providers.”
The emerging generation of wealthy Asians seems more inclined to seek these professional services too. “Wealth generated by Asia’s family-run businesses has often been managed inside of the business,” says Han. “But younger family members are increasingly looking for professional support to diversify their wealth and place rules around its accumulation and use.”
Almost 90 per cent of investors across Asia’s developed economies say they are now willing, or may be willing, to pay advisory fees, according to a survey published by McKinsey in February. In return, younger investors will expect wealth management professionals to support them through an increasingly hostile economic environment.
Navigating wealth through choppy waters
Asia is expected to contribute 70 per cent of global economic growth in 2023, but return on investments in the region are dampened by the same sticky inflation holding Western economies back. “In the past you could rely on asset classes like equities or bonds for wealth accumulation,” says Wong. “But going forward, you’ll see more people moving into private assets, such as infrastructure and private credit, to offset low returns in traditional asset classes.”
The impact of rising geopolitical tensions on private assets is already dictating the movement of wealthy Asians. Unlike private equities traded on global exchanges, private assets are acutely susceptible to geopolitical shocks, which often lead to lack of liquidity across markets. “A number of families have established multiple offices to help mitigate this risk,” explains Han. “Establishing an office in Hong Kong allows them to pursue investment opportunities in mainland China, for example, while the Singapore office focuses on south-east Asian markets.”
Transitioning wealth values
Beyond the increasingly complex investment landscape, the professionalisation of Asian wealth is being driven by a shift in values.
Among Asia’s Gen Z students, 40 per cent now consider companies having a “purpose” to be the number one factor behind any investment decision, according to a Bloomberg poll. They also take a more active interest in societal and environmental issues than previous generations.
New financial assets and services are emerging to meet these demands. “Younger family members are looking for these different options, whether it’s blended finance, impact investing or local ecosystems that they could plug themselves into and participate with like-minded people,” says Han.
Younger family members are looking for these different options, whether it’s blended finance, impact investing or local ecosystems that they could plug themselves into and participate with like-minded people
Angie Han, Head of Wealth Planning,
Pictet Wealth Management, South Asia
As changing value systems tilt Asian wealth towards greater professionalisation, the continent’s financial centres are working to align with them. On 5 July, Singapore announced amendments to the existing fund-tax incentive schemes aimed at encouraging family offices to make climate-related investments, philanthropic donations or establish blended finance structures.
As more wealth passes into the custody of the younger generation, expect the demand for these types of incentives to increase. If they are to meet them, Asia’s financial centres will need not only to provide incentives, but also to align government policy and regulation with people’s changing values. Expect the battle for Asian wealth to intensify on all fronts.
