Don’t Write Off Hong Kong’s Hedge Fund Hub as Firms Expand

(Bloomberg) -- A hedge fund industry group says Hong Kong continues to attract new firms, downplaying speculation that money managers are fleeing the city over China’s attempt to enact a national security law.

At least six hedge fund managers have set up shop in Hong Kong this year, according to the Alternative Investment Management Association. Although some Hong Kong firms are seeking licenses to expand in Singapore, they aren’t abandoning their home base, said Jack Inglis, chief executive officer of the group.

“While the anticipated new security laws undoubtedly give rise for concern, it is far too early to predict an end of its hedge fund industry,” Inglis wrote in his regular update to members on Thursday. He added that Hong Kong remains the largest center for hedge funds in the Asia Pacific region.

Hong Kong saw months of social unrest from the middle of last year as pro-democracy protesters clashed with police, disrupting businesses and tourism. Tensions have risen further over the proposed security law that opponents say could curtail essential freedoms in the former British colony that returned to Chinese sovereignty in 1997 under the “one country, two systems” promises.

The London-based industry group, whose 2,000 corporate members manage more than $2 trillion in hedge and private credit funds, rarely wades into politics. Inglis’s comments echoed those of others who say that the industry has taken a more nuanced approach to the issue.

Assets Climbing

“The details of the new security laws are not yet known, and our Hong Kong members are telling us they are taking a wait-and-see approach,” Inglis wrote. “It would never be an easy decision to relocate.”

Thirty-two new funds started in Hong Kong last year, while the number of firms grew by a third over the past five years, boosting assets under management by 85%. The association said it has 251 members in Hong Kong managing more than $100 billion.

Across the region, just over 38% of Asia-focused hedge fund firms were based in China, including Hong Kong, as of the end of March, according to a Hedge Fund Research Inc. estimate.

Large firms operate in both Hong Kong and Singapore, while medium- and small-sized firms have good reasons to remain in Hong Kong, he said, citing the predominance of locals in the industry workforce and the proximity to China’s stock markets.

“Singapore too continues to build on its reputation as a hub for hedge fund managers and more recently also as an onshore domicile for fund vehicles,” Inglis said. “This is not an either/or situation.”

While some Hong Kong-based managers are expanding to Singapore to help attract talent, some Singapore peers have been making the opposite move for the same reason, he added.

Myriad Asset Management Ltd. and Optimas Capital Ltd. are among Hong Kong-based managers that expanded to Singapore last year. Both began preparatory work before the unrest, according to people with knowledge of the matter and documents seen by Bloomberg News last year.

“Having offices in two of the region’s biggest financial centers greatly enhances the talent pool to draw from,” Inglis said in the letter.

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