As the highest form of wealth management, family office (hereinafter referred to as "family office") has formed a very mature business after hundreds of years of overseas development. In China, family offices are also favored by more and more ultra-high net worth people.

From the perspective of personal intuition, the concept of family office has been mentioned more and more in recent years. In fact, for high net worth individuals and ultra high net worth individuals, they cannot get satisfactory services in private banks. In essence, private banking is the seller's position, the core purpose is to make money for the bank, and will not really think from the customer's point of view. The family office will stand in the buyer's position of the customer and become the "gatekeeper" of the family, guarding the interests of the family for the family members in any case. " An ultra-high net worth person told the media.

When ultra-high net worth individuals consider setting up a home office, location is the first and foremost consideration. The media observed that many ultra-high net worth individuals chose to set up their offices in Hong Kong, China, including a group of founders and executives of companies listed in Hong Kong.

Recently, through research and interviews, the media have combed in detail the advantages of setting up a family office in Hong Kong, the establishment process and the current situation of the local industry, hoping to give you some inspiration. This paper is the first special study.

Why choose Hong Kong?

Why did you choose to set up a family office in Hong Kong? Specifically, setting up a home office in Hong Kong has the following four core advantages:

First, Hong Kong is Asia's leading private wealth management hub.

As a global regional financial centre, Hong Kong is the largest cross-border private wealth management centre in Asia, ranking second only to Switzerland. According to information provided to the media by invest Hong Kong, the 15 largest private wealth management companies in the world (by asset management scale) have a foothold in Hong Kong.

Second, Hong Kong's diversified product platform can meet the personalized asset allocation needs of family offices.

In terms of asset allocation, the family office emphasizes systematic and diversified asset allocation to share risks. As a result, family offices invest in a wide range of asset classes, such as bonds, stocks, fixed income products, trusts, private equity investments, hedge funds, art collections and so on.

From a product point of view, Hong Kong has a sound banking centre, the largest equity fund-raising centre in the world and the third largest bond centre in Asia (excluding Japan).

In addition, Hong Kong is the second largest private equity market in Asia, only in the mainland, and is an ideal platform for private equity investment. According to data provided by invest Hong Kong to the media, Hong Kong brings together more than 500 private equity and venture capital firms, including 15 of the top 20 private equity firms in the world.

"the main function of the family office is to invest and manage money to help families maintain and increase their wealth. As a home office, we have access to a wide range of financial products in Hong Kong, such as hedge funds, and we can find the best hedge fund managers and products in Hong Kong. " Lily (a pseudonym), the head of a single office in Hong Kong, said in an interview with the media.

Third, mature professional services and talents

Hong Kong is an international asset management centre. Hong Kong's total assets under management reached US $3.7 trillion in 2019. About 70 of the world's top 100 asset management companies have established a foothold in Hong Kong.

In terms of talent, according to data provided to the media by invest Hong Kong, Hong Kong has more than 42000 asset and wealth management practitioners, more than 45000 certified public accountants, and more than 13000 practising lawyers and barristers (including registered foreign lawyers from 33 jurisdictions).

In Lily's view, although the Hong Kong home-run industry is not too large-scale, but the relevant services are very mature, with a very professional external service team. As a result, enterprises can be "light" and do not have to spend high costs internally to train legal, financial and other teams.

Fourth, a sound regulatory framework and legal system

From the perspective of the business environment of family offices, Hong Kong has a simple and low tax environment, offering a variety of tax concessions, as well as Hong Kong's comprehensive avoidance of double Taxation Agreement (DTA) network.

In terms of the legal system, take the trust law as an example, Hong Kong's sound trust law gives Hong Kong good privacy protection and asset protection. It is reported that after the amendment of the Trust Law in 2013, Hong Kong has six characteristics: sustainable trust, protection of compulsory inheritance rights, enhancement of the preset powers of trustees, strengthening the protection of beneficiaries, and the power reserved by property grantees.

Companies listed in Hong Kong a decade ago rarely set up family trusts, but it is conservatively estimated that six out of 10 companies have managed family wealth through family trusts since 2018, according to COO Alice (a pseudonym), a single company in Hong Kong.

For years, Hong Kong and Singapore have been competing for Asian financeThe position of the center will not yield to each other. In order to attract high net worth people to set up a home office in Singapore, the Singapore government has spared no effort in recent years to introduce a number of preferential tax policies, favorable immigration and other conditions.

Alice's family office made a comprehensive comparison between Singapore and Hong Kong when choosing the site. after in-depth study, Hong Kong was finally chosen. Because she found that as a global financial center, Hong Kong has unparalleled advantages over Singapore in terms of talent, information and products.

In terms of tax concessions, Singapore and Hong Kong are pretty much the same. In addition, as Singapore joins the CRS global filing system, it is no longer attractive to high net worth individuals who want to achieve tax avoidance by investing in Singapore.

"compared with Singapore, Hong Kong is closer to the mainland market. Whether it is the development of the new economy or the number of unicorn enterprises, Hong Kong is the most attractive, and investors hope to be closer to the market they invest in. The depth and breadth of Hong Kong's capital market and the ability to invest in the mainland market through Stock Connect are advantages that other Asian markets do not have. " Alice said.

How to set up a family office in Hong Kong?

According to the number of families it serves, the family office can be divided into two major schools: Single Family Office (SFO for short) and Multi Family Office (MFO for short).

For a single office, because there is no need to raise funds from outside, the establishment procedure is relatively simple. After selecting the name and category of the enterprise, you can choose to set up a limited company in Hong Kong, and most of the limited companies established in Hong Kong are private joint stock limited companies.

From a regulatory point of view, according to the Circular on the Licensing responsibilities of Family offices issued by the Hong Kong Securities and Futures Commission on 7 January 2020, there is no licensing system specifically for family offices in Hong Kong.

The licensing system under the SFO is activity-based. If the services provided by the family office do not constitute any regulated activity or belong to any applicable exclusion, the family office will not be required to apply for a licence under the SFO. It should be noted that family offices are not allowed to claim to carry on business of a certain type of regulated activity without a licence.

Therefore, if a single home office holds the operating unit or wholly-owned subsidiary of the entity that holds the relevant assets of the family and is responsible for managing the relevant assets, there is no need to apply for a licence.

It should be pointed out that even if a single office can claim license exemption, it does not mean that a single family office is not subject to regulatory restrictions. With reference to the regulatory requirements of the CSRC on asset management companies, a single family office must strictly implement regulatory requirements in terms of governance structure, risk control, information disclosure, and employee management, to ensure that it carries out family trust business in a legal and compliant manner.

As the Joint Family Office provides asset management services to third parties, it needs to apply to the Hong Kong Securities and Futures Commission for the relevant financial licence. The financial industry in Hong Kong has an admission system, and as long as it meets the qualification requirements, it can apply for a relevant licence to engage in the industry.

It is understood that the most basic requirement of the Joint Home Office is to get financial licenses No. 4 and No. 9, but the Joint Family Office will generally be equipped with license plates No. 1, No. 4 and No. 9. Among them, No. 1 plate corresponds to securities trading, No. 4 plate provides operational advice for securities trading, and No. 9 license plate provides asset management.

At present, licenses No. 1, No. 4 and No. 9 can be obtained by applying for and purchasing by yourself:

If an enterprise chooses to apply for a license on its own, it will take about 6 months to apply. At the same time, enterprises need to meet the following six major application conditions when applying for licenses No. 1, 4 and 9:

1. A limited company which must be incorporated in Hong Kong or a non-Hong Kong company registered in the Registry.

2. The enterprise has a physical office address in Hong Kong (it must be a Grade An office building).

3. There is an experienced management team to assist in the operation of the company, business framework, internal control system and qualified responsible personnel RO (Note: RO is the abbreviation of Responsible Officer, for "the company and its responsible persons", that is, the domestic risk control officer. ).

It is worth noting that RO needs to be licensed by the CSRC, registered with the CSRC and practised for life. The RO qualification is related to the RO natural person, but not to the licensee, so RO is free to change the licensee. It is understood that the current annual salary of an RO starts at HK $1 million.

Under this system, if you violate the regulations of the Securities and Futures Commission at work, RO will lose its license for life. Therefore, in order to achieve lifelong professional qualifications, RO will supervise the day-to-day operations of licensed companies from the perspective prescribed by the SFC and comply with the regulatory regulations, and become the management tentacles of the Hong Kong Securities and Futures Commission in the operation of licensed companies.

4. The SFC does not have any restrictions or special requirements on the nationality of two licensees, the licensed individual and the responsible officer. At least one responsible officer is required to use Hong Kong as a base to directly supervise the relevant business.

5. At least one responsible person in the company must be a member of the board of directors.

6. The registered capital of a Hong Kong company requires HK $5 million; paid-up capital and liquid capital must be maintained at all times not less than HK $3 million; and an account must be opened with a bank in Hong Kong.

Because it is very difficult to apply for licences No. 1, 4 and 9 in Hong Kong, and the time period is relatively long, many institutions will consider acquiring existing licences to be transferred. According to the "Home Office New Smart Point", before the epidemic, many mainlanders set up asset management companies in Hong Kong one after another. at that time, the price of license plates No. 4 and 9 was as high as 5 million Hong Kong dollars. After the outbreak of the epidemic, the price of the license plate dropped.

Talking about the experience of setting up a home office in Hong Kong, Lily said that as an offshore market, Hong Kong's laws and taxes are relatively transparent and the procedures are relatively simple. "in the process of setting up a home office in Hong Kong, the policy has not brought any obstacles to us. We have done it step by step in accordance with the rules."

In recent years, the family office business has been booming and is an important part of the growth of the wealth and asset management industry. In order to further promote the family office business in Hong Kong, the SAR Government has provided invest Hong Kong with additional resources to set up a dedicated team to provide one-stop support services to family offices interested in operating in Hong Kong. this mainly includes providing some support for family offices in planning, opening, organizing and expanding their business.

Challenges

Due to the short development time, the Hong Kong home-run industry is still in a state of "fish and dragons mixed". There are both low-key and secret single-family offices, and there is not much information about them in the market. it also includes many organizations that sell all kinds of products in the name of "home-run".

The investment preference of a single household is highly related to the family owner. The investment decision is mainly made by the family owner, and professional managers can only play an auxiliary role.

In the view of many Old Money in Hong Kong, the main function of the home office is to "keep the rich", so its investment portfolio accounts for a relatively high proportion of solid income products. Take the single home office where Alice is located as an example, fixed income products account for more than 70 per cent of the portfolio. "in order to ensure the smooth inheritance of wealth, we will never formulate a very radical investment strategy to invest in assets that may earn 100 times today and lose 200 times tomorrow."

In this regard, Li Zhiguo, an angel investor and a follower of the new joint household office, commented that compared with the American family office, the investment concept of the Hong Kong home office is relatively conservative, so it has missed the opportunity to invest in scientific and technological innovation and entrepreneurship in the past 20 years.

The relatively conservative investment concept of the Hong Kong Home Office has also caused discord between the family owner and professional managers. According to the media, a family office with billions of Hong Kong dollars under management hired a professional manager with a top foreign private background to run the overall business. but soon the professional manager chose to leave home and rejoin the private business.

The reason is very simple. For those who invest in fixed income products, excellent professional managers are unable to give full play to their talents. Their income is mainly salary and bonus, and they do not get Carry. There is a significant gap compared with their private income. Therefore, how to find talents with excellent character, outstanding ability and long-term service is a challenge for ultra-high net worth individuals to build a home in Hong Kong.

Compared with the home-run industries in Europe and the United States, the home-run industries in Hong Kong still have a long way to go. But we can see that the family office has become a "new driving force" for the upgrading and development of the wealth management industry.

This article is edited from "Home Affairs New Wisdom"; Zhitong Financial Editor: Qin Zhizhou