TL;DR: An investment fund is a collective investment that pools investor money to buy assets under a professional manager. In Hong Kong, most funds fall under the Securities and Futures Ordinance (SFO) definition of a collective investment scheme (CIS), and can be structured as a unit trust, open-ended fund company (OFC), or limited partnership fund (LPF)—each suiting different strategies and investor types.
What exactly is a “fund” in Hong Kong?
Under the SFO, a fund is typically a collective investment scheme—arrangements where investors pool money/property, don’t have day-to-day control, and expect profits managed by someone else. This modern definition captures familiar ideas like mutual funds, unit trusts and private funds.
Core features (plain-English):
- Pooling: investors’ money is combined to invest at scale
- Professional management: usually by an SFC-licensed Type 9 (asset management) manager if management is conducted in HK
- Diversification & rules: the fund’s offering docs/LPA or instrument of incorporation set what the manager can do, how fees work, and investors’ rights
- Open-ended vs closed-ended: open-ended funds allow redemptions; closed-ended funds (e.g., PE/VC) don’t, and return capital after exits
- Key gatekeepers: manager, custodian/trustee, auditor, administrator (varies by structure)
In HK, carrying on asset management as a business generally requires an SFC Type 9 licence (with some nuances depending on activity and structure).
Common Fund Structures
1) Unit Trust
- What it is: Fund formed by trust deed; trustee holds assets for investors (unit-holders).
- Best for: Traditional retail mutual funds, passives, and some institutional mandates.
(No separate citation needed here beyond CIS definition.)
2) Open-Ended Fund Company (OFC)
- What it is: A company with variable capital purpose-built for funds under the SFO; allows share redemptions out of capital (not possible for ordinary companies). Must appoint a Type 9 manager and a custodian.
- Regulation & “one-stop” setup: SFC registers or authorises the OFC and coordinates incorporation with the Companies Registry and business registration—in a single process.
- Use cases: Hedge/long-only strategies, liquid alts, multi-asset—anything that benefits from corporate form + open-ended liquidity.
3) Limited Partnership Fund (LPF)
- What it is: A contractual limited partnership for private funds (PE/VC, credit, real assets). Requires a general partner, investment manager, responsible person (AML/CTF) and auditor; the manager must be licensed if it carries on regulated asset management in HK.
- Why GPs like it: Global “LP” look-and-feel (Delaware/Cayman-style economics and flexibility) with Hong Kong law and access to local concessions.
4) Re-domiciliation—move existing offshore funds into HK
- Hong Kong lets overseas corporate funds re-domicile as OFCs, and overseas partnerships re-register as LPFs, preserving legal continuity. Mechanisms took effect in 2021.
Who does what? (At a glance)
- Fund Manager (SFC Type 9 where applicable): discretionary portfolio management; subject to SFC codes (e.g., FMCC) when licensed.
- Custodian/Trustee: safekeeping and oversight—mandatory for OFCs (specific custodian standards apply).
- Administrator: NAV, transfer agency, reporting (contractual, not always mandated).
- Auditor: annual audit (required for LPFs).
How are Hong Kong funds taxed?
Unified Fund Exemption (UFE): Since 1 April 2019, privately offered funds—onshore or offshore—can enjoy profits tax exemption on qualifying transactions (subject to conditions). This is the bedrock tax rule for private funds operating in/through HK.
Carried Interest Concession: Eligible carried interest accruing on/after 1 April 2020 can be taxed at 0% profits tax for qualifying persons; there are also salaries tax concessions for employees receiving eligible carry (with employer reporting obligations).
System-wide advantages: HK’s territorial source principle + no VAT/sales tax, no capital gains tax, and no withholding on dividends/interest are central reasons managers use HK.
Picking the right structure
- Retail / daily liquidity / ETFs: typically Unit Trust or public OFC.
- Liquid hedge/alt strategies: Private OFC can be attractive (corporate form + variable capital).
- PE/VC/credit/real assets: LPF mirrors global PE economics and governance.
- Existing offshore fund looking to anchor in HK: consider re-domiciliation to OFC/LPF.
FAQs (quick hits)
Do I need a licence?
If you’re carrying on asset management in HK, yes—SFC Type 9 is generally required (nuances apply for delegation/incidental activities).
Can a foreign fund migrate to Hong Kong?
Yes—corporate funds to OFC, partnership funds to LPF, keeping continuity (subject to statutory steps).
Does Hong Kong tax my investors’ capital gains?
HK does not levy capital gains tax; funds rely on UFE for profits tax exemption (conditions apply). Always get structuring advice.
CTA: Want help choosing between LPF and OFC (or re-domiciling)? WhatsApp us at +852 9720 3003 or email info@titus.com.hk.