GUEST POST: Hong Kong to revamp LP regime to attract private funds

Hong Kong

Hong Kong is a global and regional hub for asset management and is clearly looking to maintain and improve its competitiveness. Particularly in the current political and economic climate, the HK government has been keen to promote economic growth initiatives including bolstering the local funds industry.

The government’s 2020-2021 Budget foreshadowed progress in two areas that have been under industry consultation: (1) a specific HK limited partnership vehicle designed for private equity funds, and (2) the clarification of carried interest tax treatment for such funds.

While the government continues to consult with the industry on potential tax concessions in respect of carried interest, it took a major step toward the creation of a more suitable local fund vehicle by introducing a bill for a ‘Limited Partnership Fund’ (LPF) earlier this year. The LPF is a significant improvement on the outdated vehicle that can be formed under the Limited Partnership Ordinance (Cap. 37) (LPO) and will be available for use from 31 August 2020.

What are the key features of the new legislation?

Key eligibility requirements

The fund must be constituted by a limited partnership agreement and have at least one general partner (GP) and at least one limited partner (LP). The GP may be a natural person over 18 years old, a private HK company, a non-HK company registered with the Registrar of Companies, a limited partnership under the LPO, another LPF or a non-HK limited partnership. The fund must have a registered office in HK for receipt of notices and the application for registration must be submitted by a HK solicitor/firm.

Legal liability

In line with the limited partnership regimes of other key funds jurisdictions, the GP has unlimited liability for the debts and obligations of the fund and each LP is not liable for the debts and obligations of the fund beyond the amount of the LP’s agreed contribution unless it takes part in the management of the fund. A ‘white list’ of permitted activities that will not be regarded as LPs taking part in the management is included and is broadly similar to – if not somewhat improved over – other key funds jurisdictions.

Compliance requirements

The GP must appoint an investment manager (which may be the GP itself or another person who is a HK resident over 18 years old, a HK company or a registered non-HK company) to carry out the day-to-day investment management functions of the fund. The GP must also appoint an auditor to carry out audits of the financial statements of the fund as well as a responsible person (which may be the GP or another person who is an authorised institution, licensed corporation, accounting professional or legal professional) to fulfil certain AML functions.


The fund must maintain records in relation to audited financial statements, register of partners, AML information, records of fund transactions and the controllers of the fund partners. Such records may be inspected by certain HK government agencies (although there is no indication that they will have access to any other fund documents) but are not available for inspection by the general public.

The road ahead

These features put the LPF on substantially equal footing with limited partnerships in other key fund jurisdictions such as the Cayman Islands, Delaware, Luxembourg and Singapore. Nonetheless, how the LPF regime will evolve and the level of uptake among private fund managers will undoubtedly be further impacted by other shifts taking place in HK at present.

The Securities & Futures Commission (SFC) has also recently consulted with the local industry on how HK licensing requirements apply to private equity and venture capital firms conducting business in HK and it released a circular providing further guidance back in January. Given the historically wide variance in the practice of HK private fund managers in respect of SFC licensing, any decision on whether to use the LPF will at least partly be informed by whether a manager is, or will become, licensed to carry out SFC-regulated activities in HK. Furthermore, the attractiveness of the LPF regime in practice will also likely depend on the extent of the HK government’s tax concessions in respect of carried interest.

In any event, the LPF regime will certainly be a welcome option for local private fund managers given that Hong Kong’s long-time regional rival Singapore is already a number of steps ahead in developing legal, tax and regulatory regimes to attract private fund managers. In addition, the offshore jurisdictions that have traditionally been used inevitably involve a double layer of regulation and administration (e.g. auditors, lawyers and administrators) and have been increasing their regulatory compliance obligations (e.g. AML regulations, economic substance requirements and the 2020 Private Funds Bill in the Cayman Islands), which might make the LPF relatively more attractive to local and regional managers.

About Goodwin

At Goodwin, we partner with our clients to practice law with integrity, ingenuity, agility and ambition. Our 1,200+ lawyers across the United States, Europe and Asia excel at complex fund formation, transactions, high-stakes litigation and world-class advisory services in the technology, life sciences, real estate, private equity and financial industries. Our Asia funds team, based in Hong Kong, has advised leading managers on private investment funds spanning various asset classes, including private equity, venture capital, real estate, infrastructure, credit and hedge funds, and across the investment fund life cycle – from structuring, formation and operation through to investments and ultimately exits and liquidation.

Gregory Barclay
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