Hong Kong: Asia’s leading asset management hub

Hong Kong’s financial services industry has remained largely resilient in the face of a number of challenges over the past few years such as social unrest, US-China trade tensions and the prolonged effects of the Covid-19 pandemic. Despite recent perceptions or predictions of capital outflows from Hong Kong and the speculation of businesses relocating operations, the city has in fact experienced continuous inflows and remains a key investment and fundraising hub. Indeed, Hong Kong was the second largest IPO listing centre in 2020 globally and achieved a historic high of USD13.9 billion in funds raised in Q1 2021.¹

The Hong Kong Government remains very focused on the important role that Hong Kong plays as a global financial centre and an international asset management hub. Recent regulatory and tax reforms have helped to reaffirm Hong Kong’s status as Asia’s premier international financial centre, and an important gateway for capital flows to and from mainland China. Hong Kong also stands to capitalise on the growing demand for investment products within mainland China, through the further opening up of the asset management market.

From an asset management and private equity industry perspective, the prospects for Hong Kong have never been greater. Over the past year, the Hong Kong Government has introduced a range of reforms and tax incentives to encourage growth and bolster Hong Kong’s position as Asia’s leading asset and wealth management hub. The introduction of the Limited Partnership Fund (LPF) regime² gives asset managers a real viable alternative to the traditional offshore fund vehicles used by Asian managers for raising capital. In a short period of time since the introduction of the regime, there are already well over 200 registered LPFs, and this number continues to grow. The LPF is a very flexible fund vehicle that can be used by sponsors in a variety of ways to raise and pool capital. Further, the Hong Kong funds tax regime should ensure that the LPF remains a tax exempt vehicle for investors, which is an important consideration for Hong Kong to become a global funds hub.

There have also been amendments to the existing Open-ended Fund Company (OFC) regime, which make the OFC regime an extremely competitive choice for an open-ended corporate fund vehicle. An OFC is now permitted to invest into any asset class, without restriction, and is tax exempt.

And for a first in Asia, Hong Kong has recently introduced a 0% tax treatment for Carried Interest³ paid from a fund. This new incentive is designed to attract further private equity and other private fund managers to Hong Kong, bringing with them a wealth of investment talent and back office support operations in order to benefit from the vast professional services and banking functions that are in the city to support their regional and global fund operations.

The reforms that Hong Kong has been introducing are reflective of a broader global trend to bring operations and investment structures onshore. Given the extent of the financial services infrastructure in Hong Kong, the Government is encouraging mainland Chinese, regional and indeed global fund managers to come and set up operations in the city. As noted already, these efforts are paying off. We are already seeing positive momentum in terms of new OFC launches and registrations under the LPF platform, evidence that these reforms have been well received by the industry. Combined, they will all help to increase Hong Kong’s attractiveness as a preferred fund domicile and asset management location. 

The Hong Kong Government and regulators are expected to build on this positive momentum and focus on introducing further tax and regulatory reforms to drive growth in the asset management sector. One key area of focus is to attract family offices to set up in Hong Kong, especially given the rapid growth of wealth in Asia, including in mainland China. A number of recent initiatives have helped to lay the groundwork to attract family offices to Hong Kong, such as the SFC’s updated guidance on investment vehicles owned by family offices, the HKMA and InvestHK’s launch of a one-stop information site, and the setup of a dedicated family office unit within InvestHK. The continued promotion of regulatory and tax reforms to attract family offices to set up in Hong Kong – perhaps by expanding the successful funds exemption regime to include family offices – would be a major boost to the industry.