Hong Kong's $1 trillion wealth management industry is endangered as tycoons move money out of the city.
Repatriating assets is not a convenient process or indeed a speedy one. But the famed tycoons of Hong Kong are being forced to do just that, and at a faster rate than ever before.
The possibility that Hong Kong residents and Hong Kong, Chinese or any other nationals either living or traveling through the city may be summarily extradited to China to face prosecution, raises many fears. One of them is over the sustainability of Hong Kong’s $1 trillion wealth management industry.
Tycoon Speak
In 2018, Hong Kong had one of the highest billionaire populations in the world, second only to New York. These 93 billionaires «super-tycoons» as well as the close to 200,000 millionaires «tycoons» that make up the fabric of Hong Kong’s economy have had many sleepless nights over the last week.
«We have lived in fear of this ever since the Umbrella movement,» says one third-generation Hong Kong tycoon whose family are large landowners on Hong Kong island, referring to the pro-democracy protests of 2014. «I am one of three [siblings] and we each have foreign passports as well as homes abroad,» she confirms, but is worried neither will be an effective safeguard against the breadth of the proposed legislation.
Immovable Assets
«It’s no longer a question of whether we have assets offshore,» she says. «It is now about what we can do about our assets onshore.» For her family, the bulk of these assets continue to be immovable – tied up in prime commercial real estate.
«International private banks have been lending offshore against Hong Kong domestic assets for the last few years,» confirms a managing director at a Swiss private bank. Assets in Hong Kong can be included in estimating the «relationship size» of a client which then becomes a factor in how much credit the client can avail of, often offshore.
«But the process is far from simple and usually executed on a case by case basis,» he says. Hong Kong’s uber-wealthy have not expatriated «anywhere close to the bulk of their wealth», he confirms, largely because of the region’s high returns and favorable taxes.
Singapore Or Switzerland?
A «Reuters» article estimates Hong Kong’s loss may well be Singapore’s gain. «Not entirely,» says the banker who believes clients would rather move assets out of Asia. «Serious money will go to Switzerland,» he says.
«We made a lot of investments on the West Coast [of America] but in the current environment that is hardly a safe harbor,» confirms the tycoon who went to university in California but now favors Europe as an investment destination.
«I should be able to close on a house in London before the end of summer,» she says, shrugging off Brexit as an inconvenience rather than a deal breaker. «We are discussing how to top up our existing accounts in Zurich without diluting returns entirely,» she says.
Beginning of the End
Whether assets move to Singapore or Switzerland may be irrelevant to the estimated 3,800 investment advisors, product specialists and client-facing professionals in Hong Kong, whose primary concern is that they will certainly move out of Hong Kong.
“It feels like the beginning of the end of Hong Kong as a private banking hub,» says a relationship manager with a European private bank who believes «headcount will be transferred out or cut» as assets move. «I have seen more colleagues move to Singapore in the last year than in the year before and the trend is unlikely to reverse now,» he adds.
