The Hong Kong-China mutual recognition scheme is, finally, set to launch on July 1st – mere days away. After numerous delays and rumours that the scheme had been pushed back to later in the year, or even 2016, the Hong Kong Securities & Futures Commission and China Securities Regulatory Commission announced a few weeks ago that they had green-lit one of the most important developments to occur in Asia in recent years.
Hong Kong managers will finally have off-shore access to the vast amounts of wealth in China
Articles in recent weeks have looked at both the positive and negative impacts that the scheme is likely to have. Clearly there are many upsides – the scheme will allow Hong Kong-based fund managers to sell their off-shore products in China, a country that has recently overtaken the US as the world’s largest economy. Up until now, Chinese investors have only had access to on-shore products from either global asset managers with operations on the Mainland or domestic fund managers. Now these investors have access to a far wider pool of off-shore funds that can offer a more regional exposure. Chinese fund managers too can benefit from the Southbound link, offering investors in Hong Kong access to their expertise in the Mainland markets. These funds have enjoyed strong performance this year and investors in the special region are likely to be chomping at the bit to invest in these funds.
Are Mainland investors interested in off-shore funds?
However, a number of industry insiders have stated their concerns. These have tended to be centred around the regulations and requirements that the scheme has introduced and there has been some concern expressed at the ambiguity of some of the stated regulations and the expected amount of time regulators will take to process applications. Many have said that the scheme must be approached cautiously due to uncertain investor sentiment and the logistical challenges that managers face in selling their off-shore funds in China. There have also been questions asked as to how high demand is from Chinese investors for Hong Kong-domiciled funds and some managers in the Mainland remain optimistic that many investors there would rather continue to invest in domestic funds than in off-shore products. It therefore seems likely that Hong Kong-based managers are going to have to work on their investor education efforts to ensure Chinese investors understand the benefits of allocating their money to off-shore strategies, something which up until now will be alien to them.
Calling all business development and compliance professionals
Looking at the mutual recognition scheme from a recruitment perspective, we are seeing an increase in demand for sales and business development professionals in Hong Kong, particularly those with extensive client coverage in China. With the scheme just a few days away from launch, a number of firms have pressed ahead with hires to tap in to the Chinese institutional market and we’re seeing a serious amount of competition for these candidates currently. Fund managers are also looking to hire investments and research related personnel, with many in advanced stages to launch Hong Kong-domiciled funds that take advantage of the passporting scheme. Product development professionals, already in scarce supply, are likely to become even more sought after, as fund managers look to add people with experience in the development and launch of new products that will appeal to Mainland investors. We’re also continuing to see demand for compliance personnel, particularly those with extensive experience of dealing with both Hong Kong and China regulators as firms look to bulk up their teams and ensure they are kept abreast of all the regulations and changes set to be brought in by the mutual recognition scheme.
The mutual recognition scheme is one of the biggest developments to happen in the Asian asset management industry
Whilst the scheme has its detractors, it looks set to be one of the biggest stories to come out of the Asian asset management industry in recent years. The success of the mutual recognition scheme will depend on how well asset managers in both Hong Kong and China can educate investors in their respective regions, as well as whether investors view their products as innovative and worthy of their investment. Much rides on the Hong Kong-China mutual recognition scheme – other passporting schemes will be looking to it to be a big success; and global asset managers, for so long keen to get in on the action in China, will see this as their best chance to tap in to the Mainland’s wealth. It may be some time before we know just how successful the scheme has been but one thing is for certain, the mutual recognition scheme is going to lead the Asian asset management industry in to a new and exciting future.