Hong Kong is the world’s leading financial centre followed by the US and the United Kingdom – no change from last year’s rankings, according to the 2012 Financial Development Report from the World Economic Forum.
The rankings are based on a number of factors underpinning efficient financial intermediaries and markets, including infrastructure, tax and legal systems, and financial services.
The ranking will benefit Hong Kong-based private equity firms when they are fundraising, according to Marcia Ellis, partner at Ropes & Gray in Hong Kong. “[GPs] can say to potential LPs all over the world that this is a top financial centre,” she told PE Asia.
“Most funds look at Hong Kong as a great island of stability and efficiency in Asia,” Ellis said. She explained that many firms have based themselves here and as a result their fund documentation will be governed under Hong Kong law and arbitration.
“It has become an essential factor that it is a place close to China and other places we invest in [that are still emerging] because Chinese companies that private equity firms invest in feel more comfortable [with financial and legal systems] in Hong Kong, [rather than] say, New York.”
However, Hong Kong has had a rough 2012. The Hong Kong Stock Exchange had far fewer IPOs than in 2011, when the HKEx scored the highest in the world for the amount of initial public offerings proceeds, according to last year's Financial Development Report.
Only 49 companies were listed during the first nine months of 2012, compared to 69 during the same period in 2011 – a disappointing year for Hong Kong’s stock exchange, HKEx data showed.
Ellis believes a slow IPO market can be beneficial to private equity. “It is actually an opportunity for private equity funds, because initial public offerings are usually the biggest competition for private equity firms, certainly in China because [companies there feel] if they can go public, why do they need private equity.”
However, capital markets around the world have reported lacklustre performance, according to the Financial Development Report. The average number of IPOs globally have declined 14 percent over the past 12 months, with Asia Pacific declining the least of all regions.
Ellis said, “[IPOs] just aren’t getting done, but that has nothing to do with Hong Kong – it is a global situation and a big factor for private equity funds right now, because a lot opportunities that are coming up would not [be emerging] if the IPO market in Hong Kong was open.”