Ep 36. The Long-Short | A fork in the road for Hong Kong

Published: 20 July 2022

The Long-Short is a podcast by the Alternative Investment Management Association, focusing on the very latest insights on hedge funds and private credit.

Each episode will examine topical areas of interest from across the alternative investment universe with news, views and analysis delivered by AIMA’s global team, as well as a host of industry experts.

This week, The Long-Short returns to APAC to cover the recent launch of a joint paper by AIMA and PwC called "Alternatives in Hong Kong: building on the city’s strengths", which sets out six pillars that will support Hong Kong in retaining its status as a key financial centre in the face of challenges brought on by COVID-19, and competition for talent from other jurisdictions. 

In part one we catch up with Phillip Meyer, General Counsel & Co-Chief Operating Officer of Oasis Management as well as the Chair of the Executive Committee of AIMA in Hong Kong, and Michael Bugel, Co-head of AIMA APAC, both of whom helped author the paper.

In part two, we speak to Lisa Tsui, Partner at PwC Hong Kong, who offered us her views regarding where Hong Kong sits in a global context as a financial services centre including the opportunities it has to leverage the growing need for wealth management services.

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Read the transcript 

Hosts: Tom Kehoe, AIMA; Drew Nicol, AIMA

Guests: Phillip Meyer, General Counsel & Co-Chief Operating Officer of Oasis Management, Lisa Tsui, Partner in Asset and Wealth Management and PwC Hong Kong

Interlude: Lorna Barnard; AIMA

 

Tom Kehoe, AIMA  00:05

Welcome back to The Long-Short. Now, it's fair to say that Hong Kong has endured a very difficult past few years. Firstly, with months of social unrest back in 2020, amid an escalation of tensions over new laws being put forward by China on the Special Administrative Region, followed by nearly three years of COVID restrictions, which still continue today. All of which have undoubtedly left their mark on all aspects of life.

Drew Nicol, AIMA  01:24

Hong Kong's financial services sector has been subject to endless speculation with some commentators suggesting its reputation as one of the world's leading financial centres is losing its allure. According to some reports, fund managers are relocating out of Hong Kong to pastures new in APAC, and the Middle East, and there are some concerns too, about a brain drain of talent leaving the region.

Tom Kehoe, AIMA  01:44

So, in this episode, we catch up with Phillip Meyer, General Counsel and Co-Chief Operating Officer of Oasis management, as well as being the Chair of the Executive Committee of AIMA in Hong Kong, and Michael Bugel, Co-Head of AIMA APAC, to get their thoughts on what is going on out there. Both Michael and Phillip were instrumental in offering a new research paper, which AIMA has done in conjunction with PwC. The paper described 'Alternatives in Hong Kong: building on the city's strengths'. And later in the episode we hear from Lisa Tsui, Partner in asset and wealth management in PwC, Hong Kong. But firstly, we turn to Michael and Phillip, you're very welcome to launch.

Michael Bugel, Co-Head of AIMA APAC  02:22

Great to be here.

Drew Nicol, AIMA  02:23

So, let's start with updating our listeners on the state of play regarding COVID restrictions in Hong Kong. What's happening here? And what are the challenges that you're having to contend with regarding the quarantine policies?

Michael Bugel, Co-Head of AIMA APAC  02:37

Why don't I just shoot first? So, the state of play currently is I think, one of optimism and one of improvement. Hong Kong clearly has faced some headwinds with COVID and its COVID policies. And as we stand today, quarantine is very much in play, as in seven days in a hotel, along with various PCR tests along the way. The travel ban I'm pleased to say has been lifted. So, that is the sort of state of play from a quarantine perspective. The challenges are therefore quite numerous. Travel, obviously, it's very hard as the need to quarantine, so managing a regional firm is very difficult. Although it can be done virtually, like we have been doing it for the past two-and-a-half years, it is somewhat taking its toll. It also is taking its toll in that there's no inflow of visitors, visitors being investors potentially, fresh talent, or even as simple as close family members. So, those are two of the main challenges if you like, the other issue is even if you wanted to come to Hong Kong, quarantine hotels are at a bit of a premium, i.e. hard to find. Now, that said, the alternatives community in Hong Kong is very vibrant and very busy. This current state of play is definitely not new to us. We are very well used to it. The reason for the optimism is that, as you know recently, we celebrated 25 years after the handover, and we've also got a new Hong Kong administration, which is now finishing its second week in power, or in play, and they are well aware of the frustrations and of the past. We are now looking forward. And I can tell you, signs of improvement are already on the horizon.

Tom Kehoe, AIMA  04:27

Michael, I've been reading a variety of accounts that suggests anything from Hong Kong is soon going to be permanently closed for business, to this being a temporary blip, and Hong Kong will recover and pick up from where it left off. So is there any end in sight? You've mentioned that things are improving but is there any end in sight to these restrictions lifted?

Michael Bugel, Co-Head of AIMA APAC  04:51

For sure the new administration has already made various noises. The first example was the flight ban, which I mentioned, which means that more flights will be coming to Hong Kong and therefore more visitors, and there is also very much talk of a curtailing quarantine. At the very least, they are saying no quarantine by November, but I actually very much anticipate some good news over the next couple of weeks, where we could be going down to five or three days, which I think will encourage some new movement into Hong Kong, be it tourism or business folk.

Drew Nicol, AIMA  05:25

So Phillip, let's bring you in here. We mentioned in our intro that PwC and AIMA have collaborated on this very interesting new report. And now we've set the scene, could you tell us a little bit about what the aim was here and why you thought it was so important to publish this now?

Phillip Meyer, General Counsel & Co-Chief Operating Officer of Oasis Management  05:46

Yeah, sure. Thanks, Drew. AIMA and PwC viewed the drafting, creation and publication of a vision paper, a blueprint, for the continued success of Hong Kong as a leading international financial centre to be critically important at this juncture in Hong Kong's history. Hong Kong has enjoyed a long history of being the leading international financial centre, particularly in Asia, it leads in the number of hedge funds and alternative asset managers in Asia. It is has enjoyed a special status and is really a unique and wonderful place to live.

Certain geopolitical, local, and then pandemic challenges have occurred over the last few years that have caused many observers to think about the future of Hong Kong, and what may need to be done to preserve its status as an international financial centre. Some commentators who are cynical, more negative and frankly, I think wrong, have declared and predicted the demise of Hong Kong as an international financial centre. Others have been more constructive. But in particular, I think the pandemic has highlighted some of these issues.

What AIMA had not seen in the industry, and had not itself ever done, was to take a step back, look at Hong Kong, and try to understand and articulate what had been the factors that had led to Hong Kong's current position as a leading international financial centre. Think about those think about how those were being affected by these current events, and to create a document that would serve as a starting point for dialogue with the government, with regulators, amongst stakeholders, to have a serious discussion about those factors and how they were under threat and what needed to be done to preserve them in order to preserve Hong Kong as a leading international financial centre. In some cases, it's a preservation of something that some view may be under threat and in other cases, it's to continue to evolve or better innovate in certain areas so that Hong Kong remains competitive.

A lot of the focus certainly is on the pandemic and Hong Kong's current response to the pandemic, including quite restrictive measures, particularly the hotel quarantine that's currently in place. But, we wanted the paper to be much broader and a little bit more timeless than just focusing on the current quarantine restrictions, and really take that more holistic view. We did view now as the right time, and like I said, a critical juncture in Hong Kong's history. We have a change of administration, that's just taken place. It's the 25th anniversary of the handover of Hong Kong from the British back to China. So, it's a very important time here. We think this paper does a great job at encapsulating the factors and the six pillars, which I think we'll talk about in a bit, and then AIMA's view, and then a blueprint for how that success can be repeated and Hong Kong’s status preserved.

Tom Kehoe, AIMA  09.35

You mentioned the challenges related to the pandemic, and respectfully the reaction from the region, opening up for business maybe a touch slower than the rest of the world has been doing as well. But you've alluded to other factors that have also been at play, namely, how does Hong Kong operate under Chinese law? And to the extent that policymakers really need to be aware of what's worked very, very well, for Hong Kong, as both yourself and Michael have said, it is a leading global financial centre. These are the points that you draw out in the paper, you've mentioned the six pillars in the paper that set Hong Kong apart.

So for our listeners, could you elaborate on these, please?

Phillip Meyer, General Counsel & Co-Chief Operating Officer of Oasis Management  10:20

Absolutely. Just to preface this, a lot of times you get people writing, let's say, a quote-unquote, vision paper about a particular region or city. And they focus on things that don’t exist, right, they focus on a wish list of things that they want, that need to be introduced, whether it’s an innovation or focus on, let’s say, green technology, or ESG, or whatever the case may be. In the case of Hong Kong, we actually challenged ourselves to not only focus on what we wished for, but to really think hard about what are those things that may need to be preserved and that status quo. And so, leading that status quo, and the preservation of status quo in the six pillars, is rule of law. And so, rule of law can mean frankly, a solid legal system, a predictable legal system, one where judicial independence is an important component. And frankly, the common law system that exists here in Hong Kong is important and has been important, and its something that should be preserved. We were encouraged to hear President Xi at the 25th anniversary handover proceedings, one of the speeches he made was to make a commitment to Hong Kong's common law system as being important to preserve the one country, two systems that currently is placed. It's very encouraging, it's very important to businesses, particularly international businesses, to have that certainty about rule of law here, I think without it, you would see many businesses who not only would stop choosing Hong Kong as governing law for contracts, or stop choosing Hong Kong as an arbitration center for any disputes. But they may move their businesses away entirely if you don't have confidence in the legal system and in the jurisdiction in which you're operating.

The next pillar is tax, a tax system, and Hong Kong is well known for having competitive tax rates both personal and corporate, for having an environment of frankly innovation, a lot of which comes from AIMA, in its proposals to and dialogue with policymakers about how to ensure a tax regime that is efficient, that's transparent, and one that's competitive with other international financial centres globally. And that is another component of another one of the pillars and the kind of components in Hong Kong that we believe, must be preserved and should continue to innovate.

The regulatory environment in Hong Kong is another one of the six pillars. Hong Kong enjoys one of the most sophisticated regulators globally. It's a regulator that is well known to operate with integrity, and transparency, a regulator that regularly engages in proactive dialogue with members of the industry, including and maybe even particularly AIMA, during consultation periods on a wide variety of proposals. That's hugely important. It's not only hugely important for AIMA and AIMA's role. It's important for an industry to believe in and have confidence in the regulatory system in which it subjects itself to as a licensed corporation. It's something that needs to be preserved in order for Hong Kong to retain its competitiveness.

Talent pool is another one of the six pillars that have led to Hong Kong success. Hong Kong has long enjoyed both a deep and rich pool of talent locally, more recently from mainland China. But particularly internationally, Hong Kong has long been a favourite Asia destination for international talent, and that talent pool, I think is under some risk of being reduced, in particular, with some of the strict quarantine requirements and measures that continue to be imposed. Some commentators have talked about a brain drain, some numbers would seem to support a net mass exodus of people from Hong Kong, maybe particularly expatriates. I think it's too soon to declare, again, the demise of Hong Kong, based on just these limited data points, and at this point on this, that's certainly I think, a very short-term view. But more must be done in this regard. And our paper lays out some of AIMA's ideas for how that talent pool can be preserved, ensure that it's deep, ensure that it's, it's rich, and to really cultivate both local talent but continue to be an attractive place for international talent to come as well.

The capital markets is another pillar of Hong Kong’s success. Hong Kong is the leading capital market center, leading equity centre for Asia, the IPO market here is strong, whether it's with Chinese listings, local Hong Kong listings, the stock exchange here is an innovative Stock Exchange, it's a very commercial Stock Exchange, it's one that works very closely with the regulators here and not against. That attitude of openness, the philosophy and spirit of openness and innovation ensure that Hong Kong remains a strong capital market, and a strong place for IPOs, and a wide variety of capital markets. There's also a good deal of innovation here. You know, whatever your views are on SPACs, I think Hong Kong was relatively quick to move forward with allowing the listing of SPACs. Now, SPACs may no longer be the flavour de sureau but it certainly shows quick action for a city like Hong Kong.

Finally, the sixth pillar is proximity to China. And this is something that's not under threat, per se, because we are geographically located next to China. But it's trying to ensure that Hong Kong continues to be not only an international financial centre, but that gateway to China, you know, and it works both ways. I think many firms who operate in Hong Kong, have business interests in China, whether direct or indirect via the markets. The proximity to Hong Kong to mainland China is something that's important. And it's important for Hong Kong to continue to maximise that particular competitive advantage. Now, the Greater Bay Area is a concept that's being promulgated in this region, Hong Kong would be the international financial center of that Greater Bay Area that would encompass Hong Kong, Shenzhen, other cities in this region. And again, that's a trend, it represents innovation and it means a Hong Kong has to continue to innovate, to ensure that it maximises its rightful place in the Greater Bay Area. These are just a few examples of the six pillars, and how important they are, the details of which we lay out in our vision paper.

Drew Nicol, AIMA  18:31

Michael, now might be a good moment, just to ask you to provide some additional context on what Philip was saying there, and what we've alluded to a few times now, about the importance of Hong Kong, in a regional and in a global context. Given your role as Co-Head of AIMA's APAC efforts, you get great visibility regarding the growing influence of the alternative investment fund universe across the APAC region. So, could you please give our listeners an idea as to the size and influence of Hong Kong's alternative asset management industry and how that compares to other leading global financial centres?

Michael Bugel, Co-Head of AIMA APAC  19:08

Sure, thanks, Drew. You know, just to echo what Philip was saying, Hong Kong's position in the alternative space globally is very admirable, and it hasn't just come about today, it's been years in the making. So, Hong Kong, the wheels are far from come off, this will blow over time and the pillars of Hong Kong, which have made it a success, will make it shine again very, very soon. If you look at the stats, Hong Kong as an alternative regional hub, clearly number one in the APAC region, and globally number three, I think the numbers vary. I think you'll see we have HK$184 billion AuM in Hong Kong plus, and to put it into perspective, because a lot of people talk about Singapore, we're at least four times to five times bigger. So, we've got to put everything into context here. Hong Kong is a very accessible place and it will continue to be a very successful place.

To Philip’s' point, the market cap in the region is continuously growing and being allocated to, all the exchanges are growing, so as a results the investors will always be allocating more and more every year to the region. And therefore, the alternatives industry has to grow along with it. Now, new launches have been very strong over the past two or three years, but slowed up a little bit this year. But still, they're coming through, slightly taking longer to seed because of the quarantine problems that we're having, investors and allocators are not being able to come to Hong Kong as much as they'd like to. So, if AIMA membership is then integrated, our growth grew 11% last year, and a lot of that was in Hong Kong, so very strong. We're also seeing the growth of the family office space, not just in Hong Kong, but also in Singapore. They are for sure, allocating more to the alternative space, so that's also very encouraging. Then also through the private banking network space, the high-net-worth individuals are also bringing more of their monies to work in the alternative space, and that is before we even talk about the greater wealth that is sitting in China, and has yet to come down and be allocated to the hedge funds or the alternative funds in this region, specifically in Hong Kong. So actually, it's a very positive picture. What we are seeing is the decentralisation of the alternative model in that managers are opening other offices in the region, to grow their talent, to keep their talent, to se’k talent, maybe to be nearer their investors or neare to markets. So, I don't see this as a negative anyway, APAC is very big and not everything comes to Hong Kong. So it's a very vibrant and strong region, and will be going forward.

Tom Kehoe, AIMA  22:02

Michael, of course, it's not just hedge funds that Hong Kong benefits from having in the region, but there are fintech firms too, the report mentions Asia Pacific's fast-growing and entrepreneurial business, and technology, e-commerce and sustainability solutions. Could you elaborate liberally on this?

Michael Bugel, Co-Head of AIMA APAC  22:20

As we know, a rising tide floats all boats. So, it's not just the alternative space, it's obviously the ecosystem around the alternative space and that adheres to fintech to blockchain, even the digital asset space is very strong, and it's been a very strong part of our membership, here and globally. So, absolutely, we've seen a growth all round, in all the various industries you mentioned, and it's all very positive. Offices are growing by the week, by the month, not to mention the private credit side of the business, that's also very active. So it's not just alternatives, but it's a whole ecosystem and the fintech around it.

Tom Kehoe, AIMA  23:07

Just to come back up to a point that you made in this around the six pillars, and the growth of the Bay region, and the influence that Hong Kong can have on mainland China. The report describes how Hong Kong is uniquely positioned to benefit from that access to international asset managers, and institutions interested in allocating funds to mainland China, as well as Chinese investment, and asset managers and owners looking to gain international exposure. There are initiatives that have been passed since that have enabled Chinese investors to invest overseas. Is that right?

Phillip Meyer, General Counsel & Co-Chief Operating Officer of Oasis Management  23:56

Yeah, so over the last several years, we've seen a real opening up of the Chinese capital markets, both, as you said for international investors to get access to, and find ways to operate in China, but also for mainland Chinese investors to get access to offshore products. A lot of these programmes are still relatively early days. They're limited, there are certain restrictions that don't make them suitable for everyone. But it does represent I think, a general trend toward openness and a trend toward innovation, which we're hugely encouraged by and frankly, being able to operate businesses to take advantage of these programmes can be done really best from Hong Kong and I think it’s one of Hong Kong’s again, competitive advantages.

Drew Nicol, AIMA  24:47

Michael, can I just go back to the point you raised before about private credit because it’s something that we’re hearing a lot this year and not just AIMA’s Singapore forum, but a few other events here in London as well, and it is the connection between the growth of private credit in Hong Kong and also across APAC more broadly. I think that’s a really interesting point I’d really like to zero in on for a second. Historically private credit has been mostly associated with the US, and when it comes to financing capital markets, both locally and in the international economy, and in more recent years, that sort of shifted over to Europe, and now it seems it’s landed in APAC. Presumably, Hong Kong is leading in that area? Would that be a fair assumption?

Michael Bugel, Co-Head of AIMA APAC  25:40

Yeah, it's fair to say that the American private credit funds are in Hong Kong, for sure. Also, in Singapore, it's a very active space and obviously, our membership are active in our membership with the ACC membership. But we all know this business has a long way to go is still very, very early days, Asian SMEs demand for growth capital is very strong, will continue to be a very strong, which gives the alternative managers the chance to loan, to refinance, to build partnerships, especially with the banks who are very dominant in the scene in APAC, I think they're about 75-80% of the lending scene, they are definitely without doubt retreating. So, I think the future is very bright, and the presence of private credit firms and managers, it's really going to go one way. And the performance to date has been very strong. So I'm actually very excited. And like you said, it's not just Hong Kong and Singapore, it's really Japan, China, all the way down south to Australia. And luckily for us, AIMA is in every single port to help our members with their private credit strategies.

Tom Kehoe, AIMA  26:51

Philip, I'm just picking up on a remark that you made in the paper, you said, if I may quote you on this, “now is the time for all stakeholders with skin in the game to collaborate on how to strengthen Hong Kong strategic blueprint in order to attract and retain alternative asset managers to ensure Hong Kong continues to be a leading international financial centre in Asia.” So very strong words there Philip, if you could maybe expound a little bit more on that, why come out with such a strong message in the paper?

Phillip Meyer, General Counsel & Co-Chief Operating Officer of Oasis Management  27:28

Well, as we said earlier, in our comments, we view now as a critical time in Hong Kong history. For Hong Kong to retain its position as a leading international financial centre, and, frankly, as a wonderful place to live and work and raise families, more needs to be done. Now, we talk about a blueprint, we talked about six pillars, and we articulated that in a lengthy, but very readable paper. Because we didn't want to focus only on quarantine restrictions, we didn't only want to focus on that, as many others have to us. While we don't just necessarily disagree with some of the things that have been set by others, we felt that is too narrow and too myopic, and really didn't take into account everything that's happening in Hong Kong and at the moment, and what we believe needs to be taken into account. And we wanted to be more constructive than we had seen others being and that's why I do say now is the time for all stakeholders to skin in the game to collaborate, how can we strengthen Hong Kong’s strategic blueprint? And, you know, part of that call to action, which it really is, is number one, we can't take Hong Kong’s success for granted.

That means I can't, AIMA can't, Beijing can't. All of us need to understand that Hong Kong has enjoyed success and has the potential to continue to be the successful IFC that it has been. But, we can't take it for granted. We can't rest on our laurels. It's going to take everyone coming together to both help understand how policies can be improved, and how rules and laws can continue to be updated to ensure that innovation is taking place to retain Hong Kong's competitiveness. But that also requires not just unilateral decisions by policymakers, it requires dialogue. Again, to the Hong Kong government's credit, to the SFC’s credit, to the regulator here's credit, they do seek that dialogue. And again, I'm happy to say, I'm proud to say, that dialogue usually starts with a conversation with AIMA. We're super proud to be one of those first touch points for the government, for the regulator and for the exchange, to get our views because they know that we have a big tent, that we represent very serious stakeholders across the industry. And that we have something smart and constructive to say. This paper, again, is meant to lay out that vision, but also to really to facilitate that discussion. But, as we say, time is of the essence. And you know, I'm not saying that if there's still hotel quarantine to some degree in 12-months, well, that's the end of Hong Kong. To me, that's a very short-term view. It's a very myopic view that I think reflects emotion, but not really constructive thinking. Look, we've been encouraged so far by the response just within the last few days of this paper. And we intend to use this paper to have that dialogue with all stakeholders, starting with the highest levels of government here.

Drew Nicol, AIMA  31:12

So thank you for that, Philip. That's a perfect segue to my last question for Michael, because although this paper has just come out, and as you mentioned, been very well received both in the media and in the industry, it really does represent the beginning and not the end, though it's been published, I would love to give you some time off now. But as you mentioned, time is of the essence. So, we've talked about the dialogue and AIMA's central role in there. So just looking ahead, now this paper is out there, and hopefully a lot of interesting conversations will come from it. So just to put it directly to you, how is AIMA participating in this dialogue? And where can our listeners find out more about our work both locally and internationally?

Michael Bugel, Co-Head of AIMA APAC  31:53

Sure, good question. And I think it's sort of a continuance of what Phillip alluded to earlier in the previous question, you will find AIMA is very active across the whole piece, not only with strong membership growth, but with most managers, very much involved not only as members but also in our events calendar. So, with membership at an all-time high, and membership in the APAC region at 36%. The engagement that we are doing with regulators and government bodies is an all-time high. And our events calendar is thrown out eight to 10 webinars a month. So, all one has to do to be engaged in dialogue and be connected with AIMA is look at our website, and see what topics we're covering in any given month. We are always open for new topics or areas of concern, we are here to help and make the industry stronger and successful, so the dialogue continues. And lucky for us, we are in Tokyo, Shanghai, Hong Kong, Singapore and Sydney. So we are very happy to help and continue the dialogue between our membership, the industry and all government bodies to make us better, stronger and more successful.

Drew Nicol, AIMA  33:01

Well, all that's left is to thank you both so much for your time and for giving us this additional colour on the paper. And as I say, I'm sure it will spark a lot of interesting conversations with all stakeholders and policymakers in Hong Kong, and Mainland China. Once again, the paper is called Alternatives in Hong Kong: building on the city's strengths. It's available to download from the AIMA and PwC websites. Personally, I'm really looking forward to seeing this paper progress and everything that comes from it. And both of your continued good work and driving progress in Hong Kong's alternative investment industry. So, thank you both. I’m absolutely certain that we will have you back again to talk about all the good work that's happened since.

Part II

Tom Kehoe, AIMA  34:30

And we're delighted to have Lisa Tsui, Partner in Asset and Wealth Management and PwC Hong Kong, joining us also today. Lisa, you're very welcome to The Long-Short.

Lisa Tsui, Partner in Asset and Wealth Management and PwC Hong Kong  34:41

Thank you, Tom.

Tom Kehoe, AIMA  34:43

So Lisa, why did PwC decide to partner with AIMA on this paper?

Lisa Tsui, Partner in Asset and Wealth Management and PwC Hong Kong  34:48

Well, first off, we're very proud to have this opportunity to partner with AIMA this time to produce this paper. PwC as the leading global professional services firm with a very strong practice in asset and wealth management is always committed to playing a role in the industry to shape and support the alternatives business for the betterment of the financial services ecosystem. It's a great opportunity to have this paper with an aim to support rich dialogue between key stakeholders in the alternatives industry to continue to strengthen Hong Kong as an international financial centre, setting out a range of opportunities, which we have described in the paper for the industry to further grow and prosper. So, we do hope that this paper with all the positive messages, can make an impact and contribute to the growth of the alternative business in Hong Kong.

Drew Nicol, AIMA  35:47

The report describes how Hong Kong can benefit from the enormous growth in wealth taking place across the entire China region. Can you elaborate on this a little bit further, and in particular, how this may change things in terms of potential new capital being allocated to the alternative investment universe in Hong Kong?

Lisa Tsui, Partner in Asset and Wealth Management and PwC Hong Kong  36:06

Sure. Thanks, Drew. I'm happy to further elaborate on this, I think the enormous growth and wealth not just particularly in China, but also in the wider Asia Pacific region, if you look from a wider spectrum, the report gives up some statistics on the growth of top 10 markets according to billionaire wealth, from 2009 to 2020. And we can see from the statistics that, in the Asia Pacific region, and in fact, Mainland China, the growth of billionaire wealth has grown 12 times, whereas by comparison, in the US and UK, it has grown less than 3 times. So, I think that indicates enormous wealth accumulation in Asia Pacific. If we dig a little deeper, the report also shows some statistics on the proportion of billionaires whereby mainland China comprises 50%, Hong Kong 8%, so with those very positive numbers, we can welcome a lot of compelling opportunities for alternative asset managers in this Asia-Pacific region, because sophisticated and wealthy individuals are all looking to diversify their portfolio, shifting away from the traditional equities, bonds, investments, and more and more so towards alternatives investments to achieve higher alpha and higher income. So, I think that very promising growth in wealth definitely plays a significant role in introducing more opportunities for alternative managers.

Tom Kehoe, AIMA  37:45

Yes, you have then that captive marketplace then looking to take advantage of, as you say, the great opportunities that exist when it comes to alternative investment management in the region, and in particular, Hong Kong, which is the leading jurisdiction across APAC. So, related to this then Lisa, how can alternative investment fund managers in Hong Kong capitalize on their proximity to mainland China? I know this is one of the six pillars in the report.

Lisa Tsui, Partner in Asset and Wealth Management and PwC Hong Kong  38:13

That's right. It is one of the six pillars that we have extensively sort of described in the paper as a very fundamental and strong capability of Hong Kong. With Hong Kong, having unique geography and unique competitive advantage, that we're just a train ride away from China, we do capitalize or take the opportunity to further prosper or welcome opportunities for alternative managers in this region, in particular, supporting some of the recent initiatives. And one example that I could quote, would be the Greater Bay Area initiatives. It is a very important economic development strategy of China driving more integration between Hong Kong and the Greater Bay Area locations, and I think with the increasing participation of Hong Kong in those initiatives, one specific example is the Wealth Management Connect. This aims to promote cross-border flows within the Greater Bay Area regions and also to enhance the integration of financial and investment flows. I think at the moment, this is still a relatively new programme, the wealth management connect. So, it is limited to banking institutions and traditional asset manager products.

However, the evolution of the wealth management connect is very positive and very welcoming, branching and expanding going into alternative asset classes, once there's more track record, and there's more demand from investors, and also the flow and size of capital accumulates more and more. So I think in the industry, we do see a very positive outlook on the wealth management connect. S

econd of all, I think, to also increase participation as part of the Greater Bay Area initiative, is to enhance more investment opportunities for private funds, be it hedge funds, private equity funds, or venture capital funds to invest more in the Greater Bay Area region, especially all the technology, big names in China, also the emerging venture capital businesses, all based in the southern part of China, I think that also creates compelling opportunities for the alternatives industry.

Tom Kehoe, AIMA  40:58

You would, of course, heard us speaking with Michael and Phillip earlier in the episode and and both of them did not hide from the fact that Hong Kong is having to face up to multiple challenges. This is mentioned in the report as well, and only this week we're again reading stories of businesses threatening to relocate, and we know of some that have done so. So, given your position, and as key employers within Hong Kong, could we get a Long-Short exclusive from you as to what level of commitment PwC you're giving to Hong Kong going forward, in terms of managing talent?

Lisa Tsui, Partner in Asset and Wealth Management and PwC Hong Kong  41:35

Sure, thanks, Tom. Yeah, so happy to share what we do and how committed we are at PwC in terms of managing talent, and also from a recruitment perspective. So, as a key employer in Hong Kong, we run a people business, so people are the most important asset for us to operate. And as such, we spend a tremendous amount of time effort and investment on how we continuously retain talent and also recruit new talent.

So, I think it's twofold. For new talent or new entrants in the industry, we always have a very strong and long-standing campus recruitment programme to hire new graduates from the top universities in Hong Kong. Separate from fresh grads, we also hire experienced hires from the industry, those with a few years of experience, either in the accounting profession or in the alternatives industry, to join us. And they make great contributions with their commercial experience. And setting aside on just recruitment or hiring, we also spend a lot of effort on retention, grooming and developing existing employees and top talent. So, we have a great programme on training development, we also have a great welcoming programme whereby we also look into so welfare of staff to ensure that they're happy to work at PwC, flexible hours, flexible dress code, flexible location.

Now we're going into a new normal sort of working arrangement in this day and age that we offer great opportunity, and flexibility and listen to their feedback. So to us, wellbeing is a very important topic as well. I think both on the technical side of training development, plus staff welfare, and by way of a combination of those, we manage talent and retain talent from different perspectives or from different angles, as a key employer in Hong Kong.

Tom Kehoe, AIMA  43:58

It's very heartening to hear, thank you.

Drew Nicol, AIMA  44:01

I'm sure a fair few listeners will find that very reassuring to hear, especially those looking to move into Hong Kong, as much as those already there. But finally, then, we've spoken about the challenges and the naysayers that are out there who have been talking about the demise of Hong Kong as a global financial center. But what's your reaction to the current situation? And could you just sum up what you believe to be the future prospects of Hong Kong as a financial hub, regionally and globally?

Lisa Tsui, Partner in Asset and Wealth Management and PwC Hong Kong  44:31

I think Hong Kong has always been a very prominent or preeminent hedge fund hub in this region, and it will continue to be as the international financial centre. Despite ups and downs, we do see that fundamentally the six pillars, as we highlighted fully described in the paper, will always be there in terms of how Hong Kong sets itself apart from other places. Those key capabilities and competitive advantages will always be the bread and butter for Hong Kong to continue to retain its role as the international financial centre. So as such, I do think the future prospects of Hong Kong will be bright and prosperous, with the successful collaboration of all key stakeholders in the alternative industries, contributing topositive and optimistic developments as an industry together. So, I would say that bright and prosperous will be will be the two words, setting the future prospects of Hong Kong.

Drew Nicol, AIMA  45:57

Excellent. Well, thank you so much, Lisa, for your time and I'd say on behalf of AIMA, thank you to all your colleagues at PwC for their partnership and guidance in creating this paper, which I think we can all agree has come at a very timely moment for Hong Kong and I like ending on a view of optimism. But thank you for your time today on The Long-Short.


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