Asset Management Series: The Limited Partnership Fund Regime

Hong Kong’s Limited Partnership Fund (LPF) regime became effective 31 August 2020.

This LPF is an exciting development for asset managers in Asia, enabling managers to raise capital through an onshore limited partnership fund.  The LPF will therefore capitalise on the trend to onshore fund structures and investment platforms.

The LPF is an extremely flexible choice of domestic fund vehicle, providing flexibility to GPs and LPs alike.  There are also some considerable advantages in deciding to use an LPF to raise capital for a traditional private equity fund, and indeed for other asset classes such as real estate, private credit and infrastructure.  As well as being able to make use of the extensive tax treaties Hong Kong has concluded with many other countries, including China, the LPF should also be exempt from tax in Hong Kong under the funds exemption.

Now that the LPF is live and there is already significant interest from GPs in setting up an LPF vehicle, this session will provide a practical overview of how to structure and operate a LPF in Hong Kong. 

The session will illustrate example fund structures using an LPF and the operating arrangements and how they may be used in conjunction with a fund vehicle.  In particular, we will highlight amongst other issues:

• how the tax exemption will apply to the LPF and what a manager needs to do to ensure the exemption applies to all investment holding companies;
• the use of an LPF for LPs in China, Asia and elsewhere
• how to benefit from the Hong Kong tax treaties to ensure the LPF is a tax resident in Hong Kong;
• illustrate the use of a LPF and an investment holding platform in Hong Kong and elsewhere
• how to structure an investment that may not strictly come within the Hong Kong funds exemption to minimise the risk of gains being taxed in Hong Kong and China
• some of the practical considerations in setting fee arrangements between the fund manager and any other advisors/sub-advisors
• how to implement an efficient Carried Interest arrangement for an LPF, having regard to the recent Hong Kong consultation on a proposed concessionary tax treatment

This session is intended to be a very practical overview of the new regime, giving participants a clearer understanding of the advantages of using an LPF to raise future capital pools.  We will also highlight some of the issues that managers will need to carefully consider when operating the fund to mitigate tax risks in Hong Kong, mainland China and elsewhere.

For enquiries, please contact Wing Cheung at +852 3927 5626.

Senior Manager (Market Development)
Hong Kong Monetary Authority (HKMA)

Partner, Tax, Hong Kong
Head of Alternative Investments
KPMG China

Partner, Alternative Investments, Tax, Hong Kong
KPMG China