Exclusive Interview with Ben Way

Hong Kong a Capital Hub for Infrastructure: Macquarie’s Asia CEO

 

Australian financial services business Macquarie Group is harnessing the “fastest growing capital pool in the world,” supplied by mainland China, taking advantage of  Kong’s financial hub role and creating innovative investment vehicles linked to China’s “Belt and Road” initiative infrastructure, says Ben Way, the group’s chief executive officer (CEO) for Asia. He added that Hong Kong as a whole must continue to focus on what the city “is really good at,” namely financial engineering.

 

The Australian executive has been leading Macquarie’s Asian business from the Hong Kong office since 2014 and he praises the city’s “good talent pool,” favourable tax rates and rule of law. For the finance multinational, the city is an important base, namely to pull in capital from mainland China, the world’s second-biggest economy, where national savings hover at around 45 percent of gross domestic product.

 

One of the world’s “fastest growing pools of capital” is from China’s insurance industry noted Mr Way. That sector’s premium income alone rose 18 percent last year to RMB3.66 trillion (US$577.31 billion), according to China’s financial regulator. In the past, insurance companies had most of their money placed in short-term, liquid investments such as bonds and stocks, but Mr Way noted the “alternative” allocation heading has been growing by 60 percent on an annual basis, “particularly say in China and in Hong Kong”. He added: “We’re talking about hundred of billions, if not trillions of [U.S.] dollars of pools of capital opening up to invest in new sorts of sectors, be it hedge funds, property, agriculture, private equity or infrastructure.”

 

Mr Way noted: “We’ve been able to harness that capital, and invest it in our funds in Asia, but also invest it in our funds and platforms all around the world. And that’s happening in Hong Kong.” The executive co-heads Macquarie Infrastructure and Real Assets (MIRA), which describes itself as “the world’s largest infrastructure asset manager,” managing approximately US$118 billion of assets, including three private funds focused on, respectively, China retail property, Greater China infrastructure and Asian infrastructure.

 

Mr Way said some of that money is going into Greater China’s push for renewable energy, a trend Macquarie is tracking closely, including via active management of projects. The company currently has a team of more than 30 people developing offshore wind facilities in Taiwan. MIRA investment has also helped JinkoSolar become one of the largest solar farm operators in mainland China, providing 2,500 megawatts of power. “That’s a pretty amazing journey in the space of three-and-a-half years,” he stated.

 

                                                                                                                   JinkoSolar Project in China

 

Mr Way suggested infrastructure in the wider Asia region was likely to be a growing investment focus for capital from China and elsewhere, thanks to the Belt and Road initiative, in which Hong Kong plays a role. “It’s an incredibly powerful concept,” said the banking executive, referring to the Chinese central government’s strategy for mutual economic development that covers 65 countries, including dozens of Asian states. “It makes sense for Asia to harness its potential to be better connected… so that the flow of ideas, capital and people can ensure that this is really the Asian Century,” he noted, using latterly an expression attributed to former Chinese leader Deng Xiaoping.

 

Capital allocation

 

This required more than just public sector effort, Mr Way suggested. According to the Asian Development Bank, the continent needs as much as US$26 trillion of infrastructure investment through to 2030. In relation to “probably at least five trillion of those dollars, it’s difficult to understand where that capital is coming from at the moment,” the Macquarie executive added. As such, he said, Asia could not rely only on government balance sheets and on multilateral institutions such as the Asian Development Bank and the Asian Infrastructure Investment Bank.

 

“If nothing more comes off the Belt and Road,  – and I think many things will come – if it can help solve that mismatch, and ensure that we have more investable projects in Asia, then that is an enormous legacy” stated Mr Way. The fact of Beijing’s strong commitment to the initiative could also help sway any investors with reservations about investing in emerging Asian markets. “It wasn’t long ago that people weren’t confident with investing in South Korea and China”, he noted.

 

Now that China is not only one the world’s biggest targets for foreign direct investment, but also a major source of capital for outbound investment, Macquarie is using Hong Kong “as a hub for teams that can be active in parts of Greater China,” helping to connect pools of capital with projects seeking investment.

 

The mainland is even “leading the world” when it comes to “cutting-edge” innovation in financial technology – or fintech – said the Macquarie CEO for Asia. From WeChat Pay to face recognition technology in the banking sector, “the emergence of megacities has led to a huge density of extraordinary ideas” in China, he added. Chinese technology companies “are taking on the Amazons and Facebooks of the world and winning,” he suggested.

 

Hong Kong’s “enormous strengths” also sometimes had the effect of creating hurdles when it sought to keep up with the mainland, said Mr Way. “Because Hong Kong is so well regulated, the ability to innovate around fintech is probably somewhat restricted, versus what’s been allowed to happen in China, which is a more emerging economy, where to some extent financial regulation – as is to be expected – is evolving along with the economy,” the executive explained. Mr Way, who has previously lived in Beijing, recalled that while the mainland had turned into a cash-free economy “literally in the space of five years,” in Hong Kong the Octopus card has many limitations and even Apple Pay had seen a timid uptake.

 

He believed the way forward for the city was to pick “two or three areas of fintech” that Hong Kong is “really good at” and then build a hub by attracting start-ups, investing in technology and later adopting it in the practices of the local government itself. The executive said the city must be “bold but realistic”. For instance, Hong Kong could be “a good place to trial things that then are commercialised elsewhere”, such as different stock exchange products and indexes.

 

In the last four years, the city’s stock exchange has set up a connection with its counterparts in both Shanghai and Shenzhen. Mr Way said Hong Kong must do more to “make sure it’s not an island, from a fintech point of view,” by looking for partnerships with other markets, including the mainland. “Hong Kong has incredibly intelligent, well-educated people. How do you draw on these people and those pools of capital and perhaps match with the technology you see in other places like China?” he stated.

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