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Hong Kong to introduce Limited Partnership fund regime

16 June 2020

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As an international financial centre, Hong Kong has a vital role to play in the funds industry, and is committed to strengthening its position for investment and wealth creation in the region. Following the implementation of the unified tax exemption and open-ended fund company regime, Hong Kong continues to enhance its competitiveness with the introduction of the Limited Partnership Fund (LPF) regime.

What this new LPF regime means for Hong Kong

Hong Kong is the second largest private equity hub in Asia after mainland China*. As a world-leading IPO market for private equity-backed companies and with close proximity to mainland China, Hong Kong is well placed to further expand its private equity business. China’s Greater Bay Area initiative and the drive of the Renminbi internationalization further positions Hong Kong to become a jurisdiction of choice for private funds in Asia.

Significant milestone for private fund structuring in Hong Kong

The Hong Kong LPF Bill was introduced on 20 March 2020, aiming to allow private funds to set up and operate locally as limited partnerships. The Bill is expected to take effect on 31 August 2020. The new LPF regime provides an alternative investment vehicle for private fund managers who are raising funds or investing in the Asia Pacific region and looking for a regionally domiciled fund vehicle.

Core elements of the proposed LPF regime

Scope and structure

  • Type of funds: private funds including venture capital, private equity, real estate, infrastructure, debt and special situation funds
  • Formality: limited partnership with General Partner (GP) and at least one Limited Partner**
  • Taxation: No capital duty and no stamp duty. LPF typically in scope under the unified funds exemption

Governance

  • Law: the Limited Partnership Fund Ordinance (LPFO)
  • Registration: submission to Registrar of Companies (RoC) by a Hong Kong registered law firm or solicitor
  • Dissolution: Fund may be dissolved in accordance with the Limited Partnership Agreement with the notification of dissolution filed with RoC

Key parties in fund operations

  • GP: responsible for management and control of the LPF, assuming unlimited liability
  • Investment Manager (IM): carry out daily investment management functions. IMs undertaking regulated activities in Hong Kong must be SFC-licensed
  • Auditor: to perform independent fund audit annually
  • AML/CFT responsible person: GP must appoint qualified parties to carry out anti-money laundering (AML) /counter-terrorist financing (CFT) functions

Key operation obligations

  • To have proper custody management
  • To maintain registered office in Hong Kong
  • To appoint an independent party such as a fund administrator for NAV calculation and investor services, if necessary and applicable

Future and next step

We believe the establishment of new LPF regime will provide substantial opportunities and long-term benefits for the asset management community and further drive a robust growth for the private equity sector in the region. We’ll continue to closely monitor the development of the regime and share more updates when they become available.

Intertrust – your fund partner

With more than 40 years in Hong Kong, we’re one of the most well established international service providers to asset manager in the region. We have a dedicated fund services team with expertise to administer both open and close-ended funds.

Leveraging on our world-leading systems and technology, we provide full administration services for alternative funds. Our core fund services include fund accounting, NAV calculation, financial statement preparation, treasury and transfer agency services.

Contact us

If you’d like to learn more about the new LPF regime or how we can support the fund setup in Hong Kong, please contact us.

 

* Hong Kong SAR Legislative Council Brief – Limited Partnership Fund Bill

** Fund should consult the Fund Counsel and Tax Adviser for proper structure setting that applicable for the activities and tax planning

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