SFST's opening remarks at 21st Hong Kong Venture Capital and Private Equity Association China Private Equity Summit (English only)
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Rebecca (Chairwoman of the HKVCA, Ms Rebecca Xu), Conrad (Executive Director of the HKVCA, Mr Conrad Tsang), distinguished guests, ladies and gentlemen,
I am honoured to take part in the China Private Equity Summit once again. Last year we met online due to the pandemic and virtual events were the norm. This year I am happy to be right here, physically, to speak to you all and those who participate virtually. Today's event gathers as many as 1,000 venture capital (VC) and private equity (PE) practitioners, corporates, and other industry professionals across the region. We are all here today so we can gather our collective wisdom and discuss the way forward for our industry.
Before looking into the many topics to be covered by the industry bright minds here today, I wish to share with you our industry's recent performance. Our PE industry is an integral part of Hong Kong's asset and wealth management business, with over US$190 billion of capital under management as at June this year, ranking the second in Asia after Mainland China. Also, US$7.2 billion were raised for our PE funds for deployment in the first half of 2022. Hong Kong was also ranked the largest hedge fund hub in Asia as at March this year, and we were the largest cross-border financial centre in Asia in 2021.
With the commencement of the new term of the Hong Kong SAR Government, we set our sights on propelling Hong Kong forward by promoting future development and improving people's livelihood. Our goal is clear - to scale new heights for Hong Kong - and this vision is being realised through the industry's top-class professionals including every one of you here. The Hong Kong Government, together with our regulators and our counterparts in the Mainland, will continue our efforts to make sure we sustain and accelerate the momentum for growth. I am grateful for this opportunity to share with you our initiatives to take the market forward, focusing on three key areas - "Proactive Policies", "Mainland Connectivity" and "Greening Our Market".
Let me first talk about "Proactive Policies", and let's begin with some statistics. As at the end of last year, our asset and wealth management business amounted to US$4.6 trillion, with 65 per cent of funds sourced from non-Hong Kong investors, demonstrating our attractiveness to international capital. The Hong Kong Government adopts a strategic approach in enhancing our status as an international asset and wealth management centre. That is why we have implemented a proactive three-step policy strategy tailored to bring our market to new heights.
The first step is to diversify our fund structures. Following the introduction of the open-ended fund company (OFC) regime in 2018, we have also introduced a limited partnership regime for funds in August 2020. The response to the regime is encouraging as over 510 limited partnership funds have been set up in Hong Kong in just two years. And for OFC, we saw more than four times year-on-year increase for the number of funds registered in Hong Kong as of end-July this year.
The second step is to create a facilitating tax environment for the industry, offering tax concessions for privately offered funds and carried interest issued by PE funds operating in Hong Kong.
The third step is to establish a mechanism for foreign funds to re-domicile in Hong Kong. The mechanism was in place since November last year, offering a way for existing foreign funds to migrate to Hong Kong.
We also strive to further develop the asset and wealth management industry by broadening the fund distribution network through mutual recognition of funds arrangements, and promoting the REIT (real estate investment trust) market in Hong Kong. In addition, to further enhance the attractiveness of OFCs and REITs, we provide subsidies for OFCs set up or re-domiciled to Hong Kong and REITs authorised by the Securities and Futures Commission and listed in Hong Kong in the three years from May last year. The subsidies cover 70 per cent of the expenses paid to local professional service providers, subject to a cap of $1 million per OFC or $8 million per REIT.
Separately, the series of listing reforms in recent years, which includes the reform to facilitate the listing of new economy companies with weighted voting rights structure and pre-revenue/pre-profit biotechnology companies in 2018, as well as the introduction of the new listing mechanism for SPACs (special purpose acquisition companies) this year, is also conducive to broadening the exit channels for PE investors in Hong Kong, strengthening our whole value chain and ecosystem.
Worth mentioning here is that we are also focusing on developing Hong Kong as a family office hub, broadening the funding sources and co-investors for our PE and VC industry. According to the latest estimates, there were over 610 000 ultra-high net worth investors worldwide in 2021, with over a quarter situated in Asia. Hong Kong offers investors and family offices a diverse basket of investment opportunities and an ideal location to manage their assets in the region. In June last year, we set up a dedicated team to assist family offices with their set-up and expansion in Hong Kong. We are result-oriented and so far the team has assisted 14 family offices to set up or expand their presence in Hong Kong.
As you may know, we propose to provide tax concession for eligible family-owned investment holding vehicles managed by single-family offices in Hong Kong. Our target is to introduce the amendment bill into the Legislative Council by the end of this year. Subject to the legislative process, the tax concession will come into effect in the 2022-23 year of assessment.
Besides proactive policies, it is also important to identify our strengths and make the best use of them, so this brings me to my second key area - "Mainland Connectivity". Among Hong Kong's many unrivalled advantages, our connectivity with the Mainland makes us the unique gateway to bridge the world with China, connecting the asset and wealth management industries and the wider financial markets on both sides.
We are well supported by the tremendous opportunities opened up by the National 14th Five-Year Plan, which expressly supports Hong Kong in enhancing its status as an international financial centre, strengthening our functions as a global offshore Renminbi (RMB) business hub, an international asset management centre and a risk management centre, as well as deepening and widening mutual access between the financial markets of Hong Kong and the Mainland, with a view to developing a vibrant Guangdong-Hong Kong-Macao Greater Bay Area (GBA).
President Xi delivered an important speech at the meeting celebrating the 25th anniversary of Hong Kong's return to the motherland, saying that among others, we must maintain Hong Kong's distinctive status and advantages, and continue to create a strong impetus for growth. To this end, the Government will proactively take forward policy initiatives on financial development to create and accumulate wealth, leverage finance to support the country's strategies, and continuously enhance our financial infrastructures and policies closely related to people's livelihood and our industry's future development.
The ever-deepening ties with the Mainland are our powerful strengths, and to capitalise on these strengths of ours, the Cross-boundary Wealth Management Connect Scheme in the Greater Bay Area was formally launched in September last year. This is the first Connect scheme specifically designed for individual investors and provides Greater Bay Area residents with a formal, direct and convenient channel for cross-boundary investments with diversification benefits. By the end of June this year, the cross-boundary fund remittances, including Hong Kong and Macao, were about RMB1.1 billion, and the aggregate quota usage under the Southbound Scheme and the Northbound Scheme was over RMB150 million and over RMB270 million respectively.
In light of actual operational experience and market feedback, we are exploring other measures to enhance the Wealth Management Connect in an incremental manner, such as allowing more participating financial institutions and improving sales arrangements. We are also making continuous efforts in expanding our other Connect schemes. In addition to the Shanghai-Hong Kong Stock Connect, Shenzhen-Hong Kong Stock Connect and Bond Connect schemes, which have thrived over the past few years, the recent inclusion of ETFs (exchange-traded funds) in Stock Connect and approval by Mainland and Hong Kong regulators for establishing Swap Connect have added to the appeal of Hong Kong's unique role to connect Mainland's capital markets with the world.
At the same time, we have been working hard to explore further collaboration with our partner cities in the Greater Bay Area. I am delighted to share with you that the Hong Kong Government is close to finalising discussions with the Qianhai Authority of Shenzhen to enhance the co-development and connectivity of the PE markets in Hong Kong and Qianhai. The new proposal with Qianhai will facilitate PE funds incorporated in Hong Kong to invest in the Mainland more conveniently.
Riding on the strong support of our motherland, and by capitalising on our financial strengths to promote development for the real economy, I believe exciting opportunities are coming in the years ahead. So I would like to move on to the third key area, "Greening Our Market", as it presents new investment opportunities for our sector as we find ways to solve the challenges brought by climate change, and improve the liveability for our society.
To contribute to the goal of achieving carbon neutrality before 2060 in our country and before 2050 in Hong Kong, and elevate Hong Kong's position as a regional green and sustainable finance hub, we will continue to work in concert with our financial regulators and the industry to promote market development, align Hong Kong's regulatory standard with international best practices and foster talent development.
To take a leading role in developing our market, under the Government Green Bond Programme, we have successfully issued Government green bonds totalling close to US$10 billion equivalent since May 2019, which were all well received by international investors.
We issued the inaugural retail green bond of HK$20 billion in May this year, and it was the largest retail green bond issuance across the globe so far. The Government has already doubled the borrowing ceiling of our green bond programme to HK$200 billion and will continue to issue green bonds having regard to market situations. By capturing opportunities in green and sustainable finance, we believe not only can investors and the public contribute to greening Hong Kong, but also we can all share the fruits of sustainable development. Going forward, we will spare no efforts in encouraging more entities to make use of Hong Kong's capital markets as well as financial and professional services for green and sustainable investment, financing and certification, with a view to greening our market and developing a more holistic ecosystem.
Ladies and gentlemen, with "Proactive Policies", "Mainland Connectivity" and the aim of "Greening Our Market", I am confident that Hong Kong and our PE industry will continue to flourish. As Hong Kong has started a new chapter and is progressing from governance to prosperity, the return of stability and safety has presented us with a promising future filled with enormous opportunities. I look forward to working with all of you and charting a rewarding way forward for the PE and VC markets of Hong Kong, GBA and beyond. Finally, I would like to express my gratitude to the Hong Kong Venture Capital and Private Equity Association for organising this highly recognised event today, and I wish you all a rewarding summit. Thank you.
Ends/Wednesday, August 24, 2022
Issued at HKT 11:40
Issued at HKT 11:40
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