Private Equity Funds in Hong Kong to benefit from new LPF structure

Regulation offers a comparative framework to other jurisdiction and could result in more funds coming onshore

On March 20 the Limited Partnership Fund Bill was published by the Hong Kong government. While subject to the usual legislative processes, the aim is for the bill to be enacted by the end of August. The regulation could provide a boon for the Private Equity (PE) industry in Hong Kong and attract Asia-focused funds that are currently based offshore, into Hong Kong.

The bill should allow for certain eligible funds to be able to register themselves as Limited Partnership Funds (LPFs). The current structure does not provide an attractive framework for Private Equity (PE) funds as they prefer a limited partnership structure. Additionally, the fund industry in Hong Kong often relies on offshore jurisdictions which usually results in more administrative burdens and regulations.

This bill, therefore, is good news for the PE industry in Hong Kong and will no doubt make the city a more attractive place for VC and PE funds to operate in. It is also worth noting that the Hong Kong budget announced earlier this year included tax concessions for carried interest issued by PE funds.

There are certain eligibility criteria for PE funds to be able to register as an LPF. The must have one General Partner and one Limited Partner (at least) as well as be constituted by a limited partnership agreement (LPA). For the General Partner there are a number of eligibility requirements including being a natural person or a private Hong Kong company. International companies can be a General Partner though they need to be registered as a non-Hong Kong company.

The LPF must also be registered in Hong Kong and have an English name, a Chinese name or a name that includes both. It must also include the words ‘Limited Partnership Fund’ or ‘LPF’ at the end, or in Chinese, ‘有限合伙基金’ as its last six characters.

To register as a LPF, a Hong Kong solicitor or law firm must register on the General Partner’s behalf. Should the fund meet all relevant requirements, a certificate of registrations will be issued. The Registrar shall keep a register of LPFs though the identity of the Limited Partner(s) will not be available in public register.

The important point of this bill is the fact that it is creating a comparative framework with other offshore jurisdictions such as Cayman Islands. Investors like these jurisdictions for a number of reasons including the friendly regulations and tax incentives. By replicating these regulations it will now become much easier to move funds into Hong Kong.

Reading of the bill shall commence in the Legislative Council on 1 April 2020, with the aim for it to be passed by August 31, 2020.