Hong Kong encourages the establishment of private equity funds.
On 20 March 2020, the Hong Kong Government published its long-awaited Limited Partnership Fund Bill to attract more private equity and venture capital funds to establish and operate in Hong Kong. Hong Kong has the second-largest private equity market in Asia, trailing only behind Mainland China.
In recent years, private equity funds have been playing a pivotal role in channelling much needed capital into corporates, especially start-ups in the innovation and technology field. The new limited partnership fund (“LPF”) regime will be an opt-in registration scheme administered by the Companies Registry. Although the Hong Kong private funds industry has traditionally relied on investment vehicles incorporated in offshore jurisdictions, these offshore jurisdictions inevitably involve a double layer of regulation and administration. THE LPF regime will make a local fund vehicle an attractive alternative.
Proposed key characteristics of LPF regime
- An LPF is a Hong Kong Limited Partnership used to manage investments for investors
- An LPF is to be registered with the Companies Registry
- The LPF is constituted by a limited partnership agreement and have at least one general partner and at least one limited partner
- The general partner may be a natural person over 18 years old, a private Hong Kong company, a non-Hong Kong company registered with the Registrar of Companies as a registered non-Hong Kong company, a limited partnership under the LPO, another LPF or a non-Hong Kong limited partnership with or without legal personality
- The limited partner may be a natural person, a corporation, a partnership of any kind, an unincorporated body or any other entity
- The fund must have a registered office in Hong Kong for receipt of notices
- The fund will not have a separate legal personality
Key compliance requirements
- The general partner can act as the investment manager of the LPF. Otherwise, an external investment manager must be appointed to carry out the investment management functions
- An annual audit is required
- The LPF must have a responsible person to fulfil certain anti-money laundering functions. The responsible person must be an authorised institution, a licensed corporation, an accounting professional or a legal professional
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