The Chinese Mainland remains a huge economy with massive and evolving investment opportunities.
The Asset Management and Private Equity Outlook considers the prospects for the asset management and private equity sector, from broad issues including regulatory developments to key topics like capital markets, virtual assets and family offices.
Andrew Weir, Global Chair, Asset Management, KPMG International says: "The domestic asset management market in China continues to mature, mostly driven by the retail sector. Recent growth in the institutional investor segment in the Chinese Mainland is also providing an opportunity for global asset managers that have experience in this area. Amid the uncertain global environment, a wait-and-see approach has sometimes been adopted, but now firms should also consider the upside opportunity compared to the downside risk of waiting."
The environment for IPOs in Hong Kong and other markets has a significant impact on the performance of the asset management sector, particularly private equity. 2023 was a quiet year for IPOs in terms of number and funds raised across all major stock markets globally. Looking ahead, interest rates may continue to come down this year. This will benefit the IPO market by improving liquidity and valuations, although the timing and pace of such rate cuts remains a matter for debate. While 2024 is unlikely to see a major resurgence in IPOs in Hong Kong or other markets, KPMG 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, but the city must ensure that its advantages remain competitive with other locations. The Family Office incentive introduced last year shows how well-designed and promoted incentives can be successful in attracting investment to Hong Kong. However, fund managers 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.
Darren Bowdern, Head of Asset Management Tax, ASPAC, KPMG China says: "Removing the uncertainty around some of the current incentives is the most important step. More clarity about the scope of the incentives available and the conditions that need to be satisfied will also address concerns of global asset managers about domiciling funds and SPVs in Hong Kong."
While the external environment remains challenging, the Hong Kong government 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 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, and it is expected that more regulatory developments will follow in 2024.
There have also been a range of incentives specifically aimed at encouraging family offices and high-net-worth individuals, including the Family Office tax incentive policy and the Capital Investment Entrant Scheme (CIES). These incentives have been widely welcomed by asset managers in Hong Kong and have generated a lot of interest from ultra-high-net-worth families, especially 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 UHNWIs put their plans into action.
Vivian Chui, Head of Securities and Asset Management, Hong Kong, KPMG China says: "Looking at the longer term outlook, the Chinese Mainland remains a huge economy with massive and evolving investment opportunities. 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. Hong Kong should be making the effort to emphasise its attractions as a global hub for asset management to be ready to capture the opportunities when growth resumes."
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About KPMG China
KPMG China has offices located in 31 cities with over 15,000 partners and staff, in Beijing, Changchun, Changsha, Chengdu, Chongqing, Dalian, Dongguan, Foshan, Fuzhou, Guangzhou, Haikou, Hangzhou, Hefei, Jinan, Nanjing, Nantong, Ningbo, Qingdao, Shanghai, Shenyang, Shenzhen, Suzhou, Taiyuan, Tianjin, Wuhan, Wuxi, Xiamen, Xi'an, Zhengzhou, Hong Kong SAR and Macau SAR. Working collaboratively across all these offices, KPMG China can deploy experienced professionals efficiently, wherever our client is located.
KPMG is a global organization of independent professional services firms providing Audit, Tax and Advisory services. KPMG is the brand under which the member firms of KPMG International Limited ("KPMG International") operate and provide professional services. "KPMG" is used to refer to individual member firms within the KPMG organization or to one or more member firms collectively.
KPMG firms operate in 144 countries and territories with more than 236,000 partners and employees working in member firms around the world. Each KPMG firm is a legally distinct and separate entity and describes itself as such. Each KPMG member firm is responsible for its own obligations and liabilities.
KPMG International Limited is a private English company limited by guarantee. KPMG International Limited and its related entities do not provide services to clients.
In 1992, KPMG became the first international accounting network to be granted a joint venture licence in the Chinese Mainland. KPMG was also the first among the Big Four in the Chinese Mainland to convert from a joint venture to a special general partnership, as of 1 August 2012. Additionally, the Hong Kong firm can trace its origins to 1945. This early commitment to this market, together with an unwavering focus on quality, has been the foundation for accumulated industry experience, and is reflected in KPMG's appointment for multidisciplinary services (including audit, tax and advisory) by some of China's most prestigious companies.
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