AIMA, the main trade body for hedge funds and private-equity managers in Hong Kong, is calling for regulators to support technology platforms that broaden investor access to new asset classes.
This includes making it easier for smaller investors, including funds in the Mandatory Provident Fund scheme, to allocate to alternative investments, possibly including digital assets. That is according to a paper released on July 12 by the Alternative Investment Management Association called “Alternatives in Hong Kong”, co-authored with PwC.
The focus of AIMA’s report is to remind Hong Kong authorities to affirm their commitment to bedrock principles such as rule of law, simple taxation, independent regulation, and attracting international talent.
Technology and innovation are not among these immediate concerns, but were cited as priorities once the city reestablishes its role as a global financial center.
That role is now in doubt. The city’s business community is famously unhappy with quarantine and other “zero COVID” measures that have moved Hong Kong out of step with the rest of the world. AIMA’s report put it diplomatically:
“It is critical that a delicate balance is struck giving proper recognition to Hong Kong’s stature as an international financial center and broader local health considerations.”
“Looking beyond the pandemic, it is of vital importance and utmost urgency that the Hong Kong Government unequivocally communicate and demonstrate that the financial services sector matters.”
That AIMA feels the need to release a report dedicated to topics that were once taken for granted says enough about Hong Kong’s current standing.
Looking past today’s problems, what are alternative managers thinking about regarding Hong Kong’s future as an asset management hub? Three things: making alternative assets more accessible, supporting the growth of private credit, and establishing leadership in ESG.
The future: accessing alts
Technology platforms are making alternatives more mainstream. But these assets and products remain available only to institutional and accredited investors. High minimum investments and illiquid product structures are an additional barrier.
“For Hong Kong to position itself as a leading jurisdiction for alternative products and the go-to destination for alternative fund managers, there is merit in broadening the base of investor groups who can access the alternative class,” said the AIMA report.
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AIMA also wants the MPF retirement funds system to be allowed to allocate funds to alternatives, which will require legislative changes to the MPF Ordinance. Noting that currently the MPF landscape may not be mature enough to handle alts, the report said, “Policymakers should seriously consider how to bring the asset class into play at some point in the near future.”
Alternatives may also include digital assets: AIMA says authorities should ensure appropriate legal and regulatory frameworks to support the safe investment into these.
Private credit and ESG
AIMA notes private credit is growing globally but Asia’s share lags, despite the opportunity for SMEs to use fintech platforms to borrow against invoices or for companies in supply chains to access a central multinational buyer’s credit score.
“Policymakers should maintain an open dialogue with investors and investment managers on how to support the sustainable growth of private credit in Asia Pacific,” AIMA said.
Finally, AIMA is calling for authorities to sharpen their focus on ESG, notably carbon credits.
“There could be policies set out to nurture private managers in this space and promote their participation in carbon credit transactions,” said AIMA, adding it would like Hong Kong try to harmonize its ESG-related standards with other jurisdictions.
AIMA concludes by calling on Hong Kong policymakers to support local ESG data providers – to ensure asset managers and corporates can deliver on their commitments related to climate risk – by encouraging the development of the necessary technology and talent.