Recent growth in the institutional investor segment in the Chinese mainland, a huge economy with massive and evolving investment possibilities, can provide opportunity for global asset managers that have experience in this area, according to a recent report

The environment for initial public offerings (IPOs) in Hong Kong and other markets has a significant impact on the performance of the asset management sector, particularly private equity, finds Big Four accountancy firm KPMG’s Asset Management and Private Equity 2024 Outlook, which considers the prospects for the asset management and private equity sector.

Last year was a quiet year for IPOs in terms of their number and funds raised across all major stock markets globally, but looking ahead, interest rates may continue to come down this year. This will benefit the IPO market by improving liquidity and valuations, the report argues, although the timing and pace of such rate cuts remains a matter for debate.

And while 2024 is unlikely to see a major resurgence in IPOs in Hong Kong or other markets, the accountancy firm is cautiously optimistic in expecting that this year could mark the beginning of a longer-term recovery in activity.

Hong Kong’s favourable tax regime is one of the key pillars of its success as a global asset management hub, the report notes. The family office incentive introduced last year, it adds, shows how well-designed and promoted incentives can be successful in attracting investment to Hong Kong.

However, fund managers, the report warns, may face difficulties in fulfilling the requirements of some other incentives, such as the tax concession for carried interest. The government has announced that it is currently reviewing the incentive, and it is anticipated that changes will be made to the regime in order to make it more in line with industry’s expectation.

While the external environment remains challenging, the Hong Kong government, the report stresses, has continued to make efforts to build a healthier and more stable asset management ecosystem. It has introduced a variety of new regulations, such as new rules, guidance and circulars, around virtual assets.

The introduction of the licencing regime for virtual assets trading platforms, KPMG shares, will move the trading of virtual assets into a regulated space, which will bring about more stability, certainty and investor protection.

With its proactive approach to regulation, Hong Kong has successfully established itself as a hub in the virtual assets space, the report states, and it is expected that more regulatory developments will follow in 2024.

The new incentives have been widely welcomed by asset managers in Hong Kong, KPMG finds, and have generated a lot of interest from ultra-high-net-worth (UHNW) families, especially those from the Chinese mainland. Hong Kong is already an attractive destination for family offices, given its competitive tax regime, finance professionals and variety of investment products.

While 2023 saw a lot of interest from clients in learning about the structure and requirements, it is expected that more family offices will be established in the year ahead as UHNW individuals put their plans into action.

“Looking at the longer-term outlook, the Chinese mainland remains a huge economy with massive and evolving investment opportunities,” notes Vivian Chui, head of securities and asset management, Hong Kong, KPMG China. “This will continue to be to Hong Kong’s advantage when the global economy recovers and activity in the asset management sector picks up again.”