The fund management sector of Hong Kong is robust by many measures, which calls for the need for fund administration and understanding of new fund structures.
According to the Asset and Wealth Management Activities Survey 2020, which was released by the Securities and Futures Commission (SFC) in July 2021, Hong Kong’s asset and wealth management business continued to experience strong growth last year and recorded a 21 per cent year-on-year increase in assets under management to HK$34,931 billion as of the end of 2020.
In order to strengthen its position as a centre for asset and wealth management, Hong Kong continues to make efforts. This initiative ensures that Hong Kong will continue to be the preferred entryway into Mainland China.
Fund Regulatory Framework in Hong Kong
The Securities and Futures Ordinance (SFO) serves as the primary regulatory framework for fund management in Hong Kong. The SFO gives the Hong Kong Securities and Futures Commission (SFC) the authority to oversee fund management operations, collective investment schemes (funds) and securities offerings. The Hong Kong corporate structure is governed by the Companies (Winding Up and Miscellaneous Provisions) Ordinance (CWUMPO).
The SFC is the principal regulatory body for approving retail fund products, licensing fund managers and monitoring intermediaries’ behaviour in the selling and marketing of fund products. The SFC publishes several manuals, rules, guidelines and frequently asked questions (FAQs) that outline the obligations and anticipated standards of behaviour for Hong Kong-registered fund managers and other market players, like fund administration service providers.
Retail funds must be authorised and comply with the SFC Code on Unit Trusts and Mutual Funds, while licensed fund managers must also abide by the SFC Fund Managers Code of Conduct (FMCC) and the SFC Code of Conduct for Persons Licensed by or Registered with the SFC.
The Different Fund Structures in Hong Kong
With more than 2,000 retail investment funds approved by the SFC, Hong Kong is a global asset management and fund distribution hub. The main types of fund structures in Hong Kong are unit trusts and corporate funds.
Hong Kong allows the establishment of funds either in corporate form as open-ended fund companies (OFCs), Limited Partnership Funds (LPFs) or in the form of a unit trust. Hong Kong-based funds can be established either domestically or abroad, whether they are offered publicly or privately.
Open-ended Fund Companies (OFCs)
Given the prevalence of corporate fund structures, a large number of the funds offered in Hong Kong were offshore before the OFC regime was put in place. Typically, these offshore entities were Cayman Islands-exempt companies. OFCs were implemented on 30 July 2018.
In September 2020, significant changes were made to the private OFC regime, lifting the limitations on the kinds of assets that private OFCs might invest in and allowing intermediaries registered or licensed for Regulated Activity Type 1 (dealing in securities) to operate as their custodians. The lifting of investment limitations is especially welcome and is anticipated to attract more private funds to establish Hong Kong as their domicile.
Limited Partnership Funds (LPFs)
On 31 August 2020, the Limited Partnership Fund Ordinance (LPFO) came into effect, allowing for the registration of qualified funds as limited partnership funds (LPFs) in Hong Kong.
The Hong Kong government has declared that it wants to increase Hong Kong’s competitiveness so that it can become a preferred location for foreign asset and wealth managers in Asia, an opportunity for fund administration firms and other related service providers. The passage of the LPFO is a very positive move in this regard.
According to the LPFO, the LPF features are consistent with those of limited partnership structures in other countries. The LPFO includes clauses that:
- allow flexibility in capital contributions and profit distribution;
- permit the parties to an LPF to freely negotiate in accordance with their commercial purposes;
- make registration with the Registrar of Companies simple; and
- provide a simple and economical dissolving mechanism.
The limited partnership is the ideal structure for private equity (PE) funds, as Hong Kong’s current Limited Partnership Ordinance does not offer a favourable environment. Fund managers have been discouraged from forming PE fund vehicles in Hong Kong due to the partnership’s restrictive requirements regarding capital contributions and profit distribution, lack of contractual flexibility and complicated dissolution procedure. These issues are addressed by the LPFO.
Why You Need a Fund Administrator in Hong Kong
The fund management industry in Hong Kong is one of the fastest expanding sectors, and its growth is proving to be crucial for the country. Long-term consolidation of Hong Kong’s position as one of Asia’s financial hubs would require a concerted effort to examine the potential and challenges facing the sector.
Considering the current various fund structures in Hong Kong, a fund administrator can ensure that the funds adhere to all applicable regulatory requirements and that clients have access to the most recent information regarding the performance of their investments.
Moreover, the outsourced fund administration services relieve Hong Kong fund managers of a focused oversight on valuation assessment. Thanks to this, fund managers have more time to concentrate on portfolio management and selecting the best investment opportunities.
Bolder Group’s fund administration services in Hong Kong
Bolder Group’s dedicated fund administration staff in Hong Kong provides private equity and personalised fund services to clients in the country and other neighbouring jurisdictions. Our team consists of industry experts with extensive knowledge and experience in Asian funds.
We have accumulated a wide range of fund strategies and fund structures with years of experience in fund administration.
Let’s talk about your fund administration needs, get in touch with our office in Hong Kong today.