Posted on 10 August 2022

APAC Investment Trends: The Hong Kong Advantage

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For decades, Hong Kong has played an important role as a gateway to mainland China. Globally recognised as one of the world’s leading financial centres, Hong Kong has played a unique historical role as a bridge between East and West that continues to this day. With PwC estimating that China will account for 20% of the world’s economy by 2050, the advantages Hong Kong offers are becoming more important than ever.

With a deep-rooted history of common law, the city’s regulatory environment is easily accessible and understood by international investors and global asset managers. “When investing in Hong Kong, you know what type of environment you’re getting into,” explains Johnson Har, Head of Hong Kong S.A.R. at Alter Domus.

In addition to its world-class financial infrastructure, Hong Kong has also developed the unique “software” required to successfully integrate China’s powerhouse economy with the rest of the world. Beyond its solid regulatory framework, the city offers a distinct advantage in the pool of financial talent and experience it has built up over the past two decades.

“Clients have been drawn to Alter Domus Hong Kong for our deep understanding of Renminbi (RMB) markets, Wholly Foreign-Owned Enterprise (WFOE) structures, and various northbound schemes,” continues Har. “The past ten years have also seen increasing requirements from mainland managers looking to grow overseas, using Hong Kong as a springboard.”

End-to-end solutions for alternative investment fund managers and investors

Alter Domus offers clients a vertically integrated solution for alternative investments – from funds, real estate, and property company administration to company secretarial services. Har notes, “Client service is a big focus for us. We provide a single point of contact for both mainland managers looking to set up European structures, as well as global managers investing in China or Southeast Asia. With global assets under administration exceeding $1.6 trillion and with 85 Hong Kong-based staff, Alter Domus acts as one of the island’s largest service providers and is truly a one-stop-shop.”

Working with investors from around the world, Alter Domus’ Hong Kong office is intimately familiar with the structures and regimes most often used by overseas Limited Partners. According to Har, “The majority of our clients are global asset managers and are accustomed to Cayman structures – which are pretty much the default. Over the past year, we have helped a dozen or so clients set up Hong Kong Limited Partnership Fund (LPF) structures – which offer certain cost benefits and tax incentives, as well as a local eco-system of banks, auditors, and lawyers.”

He adds, “For us, administrating the LPF is no different than Cayman structures. We apply the same controls, processes, and methodology. In some cases, we’ve helped clients set up both Cayman and LPF funds that cater to different investors… the process is transparent and seamless to clients.” However, with additional Cayman reporting requirements coming online seemingly every year, he anticipates the cost of Cayman structures will continue to increase relative to LPF structures.

Enhanced debt capital markets expertise

At the same time, Alter Domus is leveraging its US debt capital markets expertise to branch out into APAC. In addition to obtaining a new Hong Kong trustee license to facilitate the business, Alter Domus has hired an APAC head of debt capital markets and is currently finalizing the infrastructure required for the service offering. Hong Kong is on the frontline of these efforts as the team is onboarding its first global clients, both private credit managers.

“Building on Alter Domus’ scale in the US and our proprietary systems, we offer a clear advantage in APAC debt capital markets that most local competitors simply cannot match – in terms of institutional DCM administration software, bandwidth, experience, and expertise of our team,” comments Har.

Committed to giving back to the communities where it operates, Alter Domus actively supports the development of the investment industry in Hong Kong. Har, who sits on Alter Domus’ ESG steering committee, cites active recruitment of local graduates as well as providing solid career paths for junior staff. In addition to being a founding member of the Fund Administration Association of Hong Kong and Greater Bay Area, Alter Domus played a key role in the introduction of the Fund Administration certificate programme with HKU SPACE (an extension of the University of Hong Kong) to expand the breadth and depth of the local talent pool for the industry.

“Although many of our competitors have outsourced offshore centres in low-cost locations, Alter Domus’ regional centre of excellence is based in China – which strengthens our ability to facilitate cross-border business,” he concludes. “In addition, all client servicing is conducted through our Hong Kong team, ensuring our clients’ single point of contact is with an experienced investment professional who fully grasps the ins and outs of the market. We take care of their back-office operations, allowing our clients to focus on investing and catering to their LPs.”