1 Year Anniversary from the launch of the “Limited Partnership Fund Regime” in Hong Kong
On 31th of August 2021, Hong Kong SAR celebrated the first anniversary of the launch of its Limited Partnership Fund Regime (LPF Regime).
One year after the implementation, the Financial Services and the Treasury Bureau (FSTB) successfully announced that nearly 330 new funds had already been registered under the new regime.
The LPF Regime represents a significant step ahead in developing Hong Kong as a leading private equity hub.
Hong Kong SAR is indeed planning to strengthen its role as an international asset and wealth management center and to further promote the development of the Greater Bay Area through more active private equity investments. This plan is taking shape through the implementation of the so-called "3-Step Approach", which besides the new Fund regime, also foresees (i) the adoption of favorable tax policies, including concessions for carried interest distributed by eligible private equity funds operating in Hong Kong, and also (ii) the introduction of a redomiciliation mechanism for foreign funds to relocate to Hong Kong.
Sharpening its competitive edge as a private equity funds market is crucial to capturing Asia's huge market opportunities and growing the Hong Kong local asset and wealth management industry.
Main features
The Limited Partnership Fund Ordinance (Cap. 637) (the “LPFO”), which came into effect on August 31, 2020, introduces a new entity type for private equity and venture capital funds in Hong Kong: the Limited Partnership Fund (“LPF”).
An LPF is a form of partnership enterprise which enjoys great flexibility in making arrangements between partners.
The LPFO sets out few eligibility criteria for an LPF to be registered: a fund qualifying for registration under the LPF regime must indeed be constituted by one general partner (“GP”) and at least one limited partner with limited liability (“LP”). The GP can itself be, or must appoint, an investment manager to carry out the day-to-day investment management function of the LPF.
An LPF is not a separate legal entity; hence the GP bears unlimited liability for the debts and liabilities of the LPF and has ultimate responsibility for the control and the proper management of the fund.
The application for an LPF must be submitted by (I) a registered Hong Kong law firm or (II) a solicitor admitted to practice in Hong Kong on behalf of the proposed GP. The limited partnership agreement does not have to be submitted to the Company Registry while processing the registration, hence it remains a private document.
Benefits
The newly enacted LPFO is comparable in many aspects to limited partnership regimes in other commonly used jurisdictions (such as the Cayman Islands), particularly in terms of contractual flexibility and the allocation of liabilities. The new LPF framework provides several benefits such as:
▪ No restriction on investment scope
▪ Flexible in capital contribution and profit distribution
▪ Compared to other jurisdictions such as the Cayman Islands, the setting up and maintaining fees of an LPF in Hong Kong are relatively low
▪ LPFs that satisfy certain conditions can enjoy the Unified Profits Tax Regime
▪ HK Government offers tax concessions for carried interest issued by LPF operating in Hong Kong subject
to fulfilment of certain conditions
▪ No stamp duty for contribution, transfer or withdrawal to/from the LPF
▪ Greater privacy: Information on LPs is not publicly disclosed
The new regulations implemented in Hong Kong, supported by the intense promotional initiatives performed by local institutions and organizations like Invest HK and the Family Office Association, outlines a clear future for Hong Kong: to further strengthen itself as the focal point for asset management in the entire region.
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