Hong Kong looks to attract more Private Equity Funds

New Limited Partnership Fund Regime is introduced to attract private investment funds (including PE and VC funds) to domicile in Hong Kong

On August 31, 2020, a new Limited Partnership Fund (LPF) Regime came into effect allowing private funds to be registered in the form of limited partnerships. The new regime seeks to establish Hong Kong as a PE and VC hub, allowing investors to take advantage of the concentration of fund managers and other service providers in the city and allowing investors to channel funds into corporations and start-ups.

LPFs allow private funds to be registered as a limited partnership for the purpose of managing investments for the benefit of the investors. There must be one General Partner with unlimited liability for debts and obligations of the funds, who is also ultimately responsible for the management and control of the fund. At least one Limited Partner is required who should contribute sums to the LPF and shall not be liable for the debts of the firm beyond the amount he/she contributed, but he/she should be liable for the debts and obligations of the amount he/she draws out or receives back.

LPFs are administered by the Companies Registry under the Limited Partnerships Ordinance and will have no separate legal personality, in line with standards elsewhere. There is no minimum capital requirement and no restrictions in terms of investment scope and strategy (More information on the LPF structure is available here).

While Hong Kong is already a centre for finance and is a location of choice for investors, many still choose to locate their funds in other jurisdictions, including the Cayman Islands, Delaware, Luxembourg, Mainland China and Jersey, as they are familiar with the regulatory framework and tax regimes in these locations.

The LPF structure aims to establish Hong Kong as an alternative jurisdiction for these funds and a continuation of the city’s efforts to promote itself as a PE and VC hub. Not only does Hong Kong have a deep pool of service providers, the Hong Kong Stock Exchange and a wide range of Double Tax Agreements, but it is located next to Mainland China – itself the largest PE investment destination in Asia – and home to a thriving corporate and start-up community that could benefit from more funding from VCs and PE.

For more information, contact Alpadis Group.