“Market sentiment has improved somewhat (between 2022 and 2023), but we are very much affected by what is happening in the Chinese economy. So I think in terms of inflows into the fund industry, we still face a lot of challenges,” said Sally Wong, chief executive of the Hong Kong Investment Funds Association (HKIFA). She spoke during a panel titled “A Closer Look at How Asia and the US Are Addressing Global Challenges” at the Luxembourg Association of Investment Funds (Alfi) conference on September 20.
Following the drop in market turnover (more than in other markets), Ms Wong said the Hong Kong government had formed a task force (consisting of official and non-official members) to boost the exchange’s liquidity. The aim is to make the Hong Kong market more “dynamic”, despite pressure from bank deposits which now offer attractive interest rates.
Prices and political uncertainty
The improved economic environment and recovering inflation posed the question of which direction to take before the Fed. “As a result, I think people are resting on their laurels a little bit from an investment standpoint,” said Jim Fitzpatrick, president and chief executive officer of Nicsa, a nonprofit trade association for the global healthcare, asset and wealth management industries.
Another major topic is the US presidential election in 2024. “There are obviously big long-term implications, not just for our sector, but for the global sector as a whole,” commented Mr Fitzpatrick.
ESG in the United States: Lagging but Accelerating
“I think we’re still two years behind Europe on ESG issues, including the regulatory environment,” Mr Fitzpatrick said, but he thinks the topic is “top of the table.” Agenda (…) from industry-specific perspectives.
It is also high on the agenda of the US Securities and Exchange Commission (SEC), which on the day of the conference adopted amendments to current rules regarding registered fund names, as well as certain forms and disclosure requirements.
The Politicization of ESG in the United States
“More than 20 attorneys general from majority-Republican states have sent letters to fund managers asking them to defend their ESG policies, voting rights and proxies because their primary fiduciary duty is to be accountable to shareholders,” said Mr. Fitzpatrick. However, he noted that investment firms are “very interested in ESG and ESG product lines” and in regulatory guidelines on codes of conduct.
Individual investor survey result on ESG: If I have to do something good, I will do it separately from the investment.
During the discussions, it was noted that many ESG concepts are not well defined in the United States and that the regulator has taken a strict approach to enforcement. “I think five companies have been significantly fined for making false statements and misleadingly marketing ESG products to their customers,” Mr Fitzpatrick said. The latter believes that this is the result of a lack of guidelines on the code of conduct.
ESG in Asia: Investors are moving at a different speed
“If I have to do something right, I will do it separately from investing,” said Ms. Wong, referring to the results of the ESG survey of retail investors. On the other hand, she explained that the framework of the Task Force on Climate-Related Financial Disclosures (TCFD) was translated into a code of conduct for fund managers last year. It sets expectations for how fund managers should integrate the framework into their risk management process, investment management process, governance and disclosure.
Ms Wong also explained that she is in discussions with the Hong Kong Securities and Exchange Commission to assess the best options for regulating ESG data and service providers. She noted that some jurisdictions have applied a mandatory approach while others simply rely on “existing outsourcing rules”. HKIFA plans to propose an interoperable and efficient model to the regulator.
Restriction of data transfer to Luxembourg
Framing her comments in the form of non-binding complaints, Ms Wong said many HKIFA members were working to comply with Luxembourg’s anti-money laundering and know-your-customer requirements, as “the custodian banks required a lot of information, for example about reporting suspicious transactions and knowledge of fundamental investors.
Retirement Planning: The Path to Growth
“A number of companies have made acquisitions to enter the pension plan market,” Mr Fitzpatrick said. He adds, “Retirement plans in the United States are worth approximately $13 trillion, of which 95-97% of participants have never been targeted by asset and wealth management firms as potential clients.”
Once retirement plan accounts are managed internally and people reach high levels of wealth, “you already have a relationship of trust with them and they’re more likely to do business with you,” Ms .Fitzpatrick. He also believes that one of the key factors in Putman’s purchase of Franklin Templeton was their approach to pension plans.
Digital Assets and Cryptocurrencies: Different Views
“It’s still early because there are uncertainties around the liquidity of the valuation and there are a lot of stories,” Ms Wong said. Still, she noted that wealthy individuals have accumulated “some exposure.” He admits, however, that this topic is not among their priorities.
HK is instead focusing on other alternative products and how to offer them to individual investors. Ms. Wong explained that discussions are underway with regulators to open defined contribution schemes for infrastructure investment and private equity.
“I think it’s a priority for a few companies … (because) there are more than 10 companies that have applied for some kind of bitcoin or digital fund,” Mr Fitzpatrick said. However, the SEC took a very restrictive approach in its review. “There is certainly investor appetite for a relatively small allocation to digital assets and tokenization.”
This article was published for the Delano Finance newsletter, a weekly source of financial information in Luxembourg. Subscribe via this link.