Hong Kong wants its family office sector to thrive – China might think differently

A good indicator of the health of Hong Kong’s investment sector is local family office activity. Right now, that activity looks strong, and the government is doing a lot to promote the sector. But China will be watching carefully…maybe too carefully for the sector to thrive in the long term. 

Ten years ago, I was asked to analyze the family office sector in China for a quarterly business journal. I approached the subject with an open mind, hoping to discover a buoyant family office sector in the world’s second-largest economy. China had no shortage of billionaires, so it must have plenty of family offices – so I thought. 

But even then – before Premier Xi Jinping had fully exerted his influence on the economy – the family office sector in China was minuscule and, what existed, was very opaque

But even then – before Premier Xi Jinping had fully exerted his influence on the economy – the family office sector in China was minuscule and, what existed, was very opaque. So, yes, there were a few, but nothing approaching the same level you’d expect from a Western perspective, given the wealth in the country. 

Of course, that wasn’t all to do with the particular culture around billionaire wealth in China. Much of it was because serious wealth was still in its infancy in China and mostly tied up in early-stage operational businesses. Many founder entrepreneurs didn’t see much point in setting up a family office when building a business. 

Today, I think the operational business excuse isn’t so valid. But instead, political features make a family office sector in China almost impossible to exist, let alone thrive. Our editor wrote an article connected to this a few weeks ago and mentioned why the so-called “tall poppy syndrome”, which has become so prominent in China under Premier Xi, affects wealth there. 

My concern is that Hong Kong could be about to experience a version of China’s “tall poppy syndrome”. Admittedly, it might not be as forceful as it is in the mainland. Still, it will nevertheless affect Hong Kong’s top entrepreneurs and business people negatively, hurting the development of a thriving family office sector in the Special Administrative Region. 

Undoubtedly, Hong Kong’s existing family office community and the people in charge of promoting the city’s appeal to outside investors would disagree. But I think, at least towards recent promotional efforts, they may be making hay while the sun shines. They won’t admit it publicly, but they are concerned. 

There are other factors involved, too. Most would agree Singapore has been exceptionally good at attracting family offices to the city-state in recent years. With the coup de grâce last year being Sergey Brin’s family office, Bayshore Global Management, decision to open an office there. That decision was a huge vote of confidence in Singapore’s role as the dominant family office hub in the Asia-Pacific region. 

Hong Kong has always competed with Singapore to attract international capital, which isn’t any different than before, and family offices are now a big part of those efforts. For the most part, Hong Kong has often come out top with those efforts. 

But could China’s increasing control of the levers of power in Hong Kong swing the advantage decisively to Singapore?