Hong Kong

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Hong Kong maintains its position as a premier global financial center, serving as a critical gateway between China and international markets. The alternative investment fund industry in Hong Kong continues to flourish, driven by its strategic location, robust regulatory framework, and investor-friendly tax environment.

Total AUM exceeds HKD 34.5 trillion (approximately USD 4.4 trillion) across all fund types with year-over-year growth of 8.3% in private fund registrations. A significant increase in redomiciliation from traditional offshore centers like the Cayman Islands has been observed, alongside enhanced incentives for Open-ended Fund Companies (OFCs) extended until May 2027.

Hong Kong's unique position as a conduit to Chinese markets coupled with its sophisticated financial infrastructure makes it an increasingly attractive domicile for alternative investment funds in 2025.

Total number of registered funds exceeds 3,200, with private fund registrations increasing 8.3% from 2024. This includes over 850 Hong Kong Limited Partnership Funds (HKLPFs), 450+ Open-ended Fund Companies (OFCs), and approximately 1,900 Unit Trust structures.

The market has seen sustained growth in private equity and venture capital funds targeting regional opportunities, with a significant uptick in redomiciliation applications from Cayman Islands structures. There is increased interest from international fund managers establishing APAC headquarters in Hong Kong.

Hong Kong's evolution as a fund domicile gained momentum following the introduction of the HKLPF regime in 2020 and enhancements to the OFC structure in 2018 (with significant revisions in 2020). These regulatory innovations were designed to position Hong Kong as a competitive alternative to traditional offshore domiciles, particularly for managers focused on Asian investments.

Hong Kong continues to strengthen its position relative to competing regional domiciles including Singapore, the Cayman Islands, and Luxembourg. While Cayman remains dominant for certain fund types, Hong Kong's proximity to mainland China, regulatory harmony with global standards, and tax advantages have accelerated its growth as a preferred domicile for Asia-focused investment vehicles.

Hong Kong operates as a common law jurisdiction with well-established legal precedents. Regulatory oversight is provided by the Securities and Futures Commission (SFC) and Hong Kong Monetary Authority (HKMA). The domicile offers a one-stop establishment process for OFCs and maintains a clear and consistent legal framework for fund formation and operation.

The jurisdiction benefits from strong institutional governance, a stable currency (HKD) pegged to USD, a resilient financial system with robust capitalization, and established rule of law and contract enforcement.

Hong Kong's strategic location serves as a gateway to mainland China and broader Asian markets. The physical proximity to emerging investment opportunities across Asia, combined with time zone advantages for managing Asian portfolios, positions Hong Kong as a hub for cross-border investments between East and West.

The market features a comprehensive network of fund administrators, custodians, and legal advisors, supported by advanced technological infrastructure. A deep pool of experienced fund service providers and strong auditing and compliance support ecosystem completes the offering.

Hong Kong maintains a bilingual business environment (English and Chinese) with cultural familiarity with both Western and Eastern business practices. This facilitates communication with mainland Chinese investors and regulators, supported by a multicultural workforce with international experience.

Fund managers benefit from access to qualified financial professionals with strong expertise in regional markets and growing specialization in alternative investments. Competitive compensation structures help attract global talent.

Hong Kong offers competitive setup and operational costs compared to major financial centers, with lower operating costs for OFCs compared to Cayman equivalents. Grant schemes for qualifying fund structures and economies of scale within the established financial services ecosystem further enhance the value proposition.

The HKLPF was introduced in 2020 under the Limited Partnership Fund Ordinance (LPFO) and is registered with the Hong Kong Company Registry. It requires a general partner (GP), investment manager (IM), and responsible person (RP), making it a common structure for private equity, venture capital, and closed-ended funds.

Applications for registering an HKLPF must be submitted to the Hong Kong CR by the proposed GP, acting through a Hong Kong lawyer or solicitor. A re domiciliation regime is available for funds from other jurisdictions such as Cayman Islands' exempted limited partnerships (ELPs) to redomicile to Hong Kong. While the HKLPF is attractive to asset managers and investors in the Greater Bay area, fund activities may fall under SFC supervision, potentially requiring a licensed entity to be appointed as the IM.

The OFC is a corporate form with legal personality and board of directors, introduced in 2018 and revamped in 2020. It can operate as an umbrella fund with segregated sub-funds, each with its own assets and liabilities. Registered with and approved by the Securities and Futures Commission, the OFC structure is suitable for hedge funds and other open-ended investment strategies.

Recent enhancements have removed investment restrictions and expanded the scope of persons permitted to act as custodians for private OFCs, making the OFC an attractive alternative to Cayman Islands segregated portfolio company (SPC) structures. The SFC provides a one-stop establishment process for setting up an OFC, and operating costs are generally lower than for Cayman funds.

This traditional structure under trust law requires a trustee to hold assets and offers flexibility suitable for various investment strategies. Unit trusts are commonly used for both retail and institutional investors in Hong Kong.

Private funds are typically limited to professional investors with less stringent regulatory requirements and greater flexibility in investment strategies. They remain subject to relevant codes and guidelines from the SFC.

Alternative Investment Funds (AIFs) are generally offered to professional investors or through exemptions from SFC authorization. If an AIF is an HKLPF, the investment manager must be a Hong Kong resident who is at least 18 years old, a Hong Kong company, or a foreign company registered as a non-Hong Kong company under the Companies Ordinance. For OFCs, there is a requirement to appoint a Hong Kong manager licensed to conduct Type 9 regulated activity (asset management).

Public funds available to retail investors require SFC authorization and must comply with the SFC's Code on Unit Trusts and Mutual Funds or OFC Code. These funds are subject to stricter investment restrictions and disclosure requirements.

The market has seen an extension of the OFC grant scheme until May 9, 2027, providing subsidies for qualified OFCs for up to 70% of eligible expenses, subject to a cap of HK$500,000 per private OFC and a cap of three OFCs per investment manager. Additionally, enhanced redomiciliation processes for offshore funds, streamlined application procedures for private fund registration, and expanded scope of eligible custodians for private OFCs have improved the domicile's attractiveness.

Private Equity and Venture Capital comprise approximately 42% of the alternative investment fund market, followed by Hedge Funds at 27%, Real Estate at 14%, Private Credit at 10%, and Other Alternative Strategies at 7%.

Hong Kong-based managers account for 38% of fund initiators, followed by Mainland China-based managers at 24%, US-based managers at 18%, European managers at 12%, and other APAC managers at 8%.

Institutional investors represent the largest segment at 45%, followed by high-net-worth individuals at 30%, family offices at 15%, sovereign wealth funds at 7%, and retail investors at 3%.

Direct placement accounts for 52% of distribution, followed by private banks at 25%, institutional placement at 18%, and digital platforms at 5%.

Hong Kong maintains an investor-friendly tax system with no capital gains, withholding, or dividend taxes for foreign investors. Funds may be exempted from profits tax on qualifying transactions and incidental transactions.

For HKLPFs, a concessionary tax rate of 0% has retrospective effect, meaning that eligible carried interest received by or accrued to qualifying carried interest recipients on or after April 1, 2020 is essentially exempt from Hong Kong profits tax. To qualify, private equity funds must comply with certification criteria published by the Hong Kong Monetary Authority (HKMA).

OFCs may be eligible for exemption from profits tax on transactions in asset classes beyond those specified in Schedule 16C to the Inland Revenue Ordinance. This broadened exemption enhances the attractiveness of OFCs for various investment strategies.

Hong Kong maintains a growing network of comprehensive double tax agreements that provide potential benefits for certain fund structures, particularly for investments into treaty jurisdictions. These agreements can reduce withholding taxes on dividends, interest, and royalties from investments in treaty partners.

Hong Kong's straightforward tax regime compares favorably with other major fund domiciles. The absence of VAT/GST, capital gains tax, and withholding tax on dividends provides clear advantages over certain competitor jurisdictions. The unified fund exemption regime offers broad tax exemptions that are competitive with offshore financial centers.

Hong Kong boasts a robust ecosystem of service providers including administrators, custodians, auditors, legal advisors, and consulting firms. Major global service providers maintain significant operations in Hong Kong, and local specialists offer deep expertise in regional markets and regulatory environments.

For HKLPFs, the setup process requires application submission by the proposed GP through a Hong Kong lawyer or solicitor. The structure requires a GP, an IM (which can be the GP), and an RP.

For OFCs, registration and approval from the SFC is required, including appointment of a Hong Kong-licensed Type 9 asset management company. The structure requires a board of directors and segregated liability between sub-funds if established as an umbrella fund.

Ongoing operational requirements include compliance with relevant SFC codes and guidelines. For managers operating AIFs, compliance with the SFC's Fund Manager Code of Conduct is necessary, which includes requirements around liquidity management tools and disclosure of preferential redemption terms.

Fund governance standards in Hong Kong align with international best practices. For OFCs, a board of directors provides oversight, while HKLPFs operate under GP management with appropriate checks and balances. Anti-money laundering (AML) and counter-terrorist financing (CTF) regulations require appointment of authorized persons and implementation of robust compliance procedures.

HKLPF registration typically takes 10-15 business days following submission of complete application materials. OFC establishment timelines are approximately 1-2 months, depending on complexity and regulatory review.

Setup costs vary by structure but typically range from HKD 200,000 to HKD 500,000 for standard fund formations, excluding regulatory licensing costs if required. Ongoing operational costs are generally competitive compared to other major financial centers, with OFCs specifically noted as having lower operating costs than equivalent Cayman structures.

The market is witnessing increased innovation in hybrid fund structures combining private equity and debt strategies, growing interest in sustainable finance products targeting ESG opportunities in Asia, and expansion of digital asset funds within regulatory frameworks.

Institutional investors increasingly prefer structures with enhanced governance and transparency, with growing demand for co-investment opportunities alongside traditional fund investments. Family offices are increasingly establishing presence in Hong Kong to access regional investment opportunities directly.

The regulatory landscape continues to evolve with ongoing enhancements to fund regimes to increase competitiveness, harmonization with global standards around sustainability disclosures and risk management, and balanced approach to digital asset regulation providing clarity while managing risks.

Hong Kong is strengthening its position as the preferred gateway for international investments into China and Chinese investments abroad. The jurisdiction is developing specialized expertise in sectors aligned with regional economic priorities including technology, healthcare, and sustainable infrastructure, while maintaining a balanced regulatory approach that provides investor protection without excessive burden.

Hong Kong's key strengths as a fund domicile include its strategic location as a gateway to China and broader Asian markets, robust legal and regulatory framework with common law foundations, investor-friendly tax environment with specific incentives for fund structures, comprehensive ecosystem of service providers with deep regional expertise, and multicultural, multilingual business environment bridging East and West.

As global fund flows increasingly target Asian growth opportunities, Hong Kong is exceptionally well-positioned as a domicile combining international standards with regional access. The continued development of the Greater Bay Area initiative enhances Hong Kong's strategic importance for fund managers seeking to participate in China's economic growth while maintaining international connectivity.

Hong Kong's appeal as a fund domicile continues to strengthen, particularly for strategies focused on Asian markets. The combination of strategic location, regulatory enhancements, tax advantages, and comprehensive infrastructure positions Hong Kong as a compelling alternative to traditional offshore domiciles for global fund managers. 

With continued regulatory refinement and growing institutional acceptance, Hong Kong fund structures are becoming increasingly mainstream components of international fund structuring strategies.