Despite the challenges, Hong Kong optimists point at the size and mix of the market’s investment universe as a key factor that will sustain the city's status as a hub for family offices, according to industry experts on a recent panel.
A giant universe of diversified product solutions and capital markets to attract investors alongside supporting infrastructure and talent will help sustain Hong Kong’s status as a hub of choice for family offices, said Anthony Chan, chief executive of multi-family office Isola Capital, underlining this to be especially the case for alternatives.
«If you want to get exposure to Greater China private investments, the proximity of Hong Kong to the market is critical. You can’t be anywhere and still get access to the same kind of deal flow,» Chan said during a recent webinar hosted by the Asian Financial Forum.
Alt Demand
With traditional stocks and bonds generating historically weaker returns, investors are increasingly seeking alternatives for superior performance.
«We have seen clients increase their allocations towards alternatives,» said J.P Morgan Private Bank’s head of Hong Kong and the Philippines Paul Thompson, underlining the stark contrast compared to a decade ago when investors preferred liquid asset classes. «We’ve been very active even in the early 2000s adding to portfolios and now we are getting more and more focused on direct deals.»
Private Credit
And family offices’ alternative demand for private investments has not been limited to just equities but also credit. While Chan notes that this may not be a fresh asset class, the approach of using private credit to replicate certain parts of the fixed income portfolio is relatively new.
«Private credit now has become extremely sophisticated,» Chan said, underlining a range of investments across trade finance, leverage buyouts, mezzanine debt and venture debt. «It’s obviously quite risky at certain ends of the spectrum but family offices are usually pioneers to look into these types of asset classes because they have the capacity to deploy.»
Digital Assets
Although Hong Kong has been relatively less active on digital asset regulations, the door is still open for it to grab market share with a recent study by Forex Suggest naming the city as the most crypto-ready market worldwide.
Chan and Thompson agreed that while many family offices have shown interest, exposure to the nascent asset class remains limited with a low single-digit percentage in allocations.
«Some of the bigger family offices are trying, they're exploring and they want advice on this. From a firm perspective, we're kind of figuring out what our offering should be. It’s a challenging area to give advice on, especially if you're a private bank,» said Thompson. «That being said, I do think it's going to be an asset class that will continue to evolve and continue to take market share.»
