Introduction

Prior to the introduction of the Open-ended Fund Company (“OFC”) and Limited Partnership Fund (“LPF”) regimes in Hong Kong in 2018 and 2020 respectively, most investors and asset managers were more familiar with their offshore counterparts, exempted companies and exempted limited partnership in the Cayman Islands. For a summary of OFC’s and LPF’s key features and a comparison between each of them and its Cayman counterpart, you may refer to our newsletters of February 2022 and August 2020 for further details.

In this article, we will highlight a main update and recent trend in the Hong Kong investment fund landscape.

Extension of the OFC Grant Scheme

With the on-going Grant Scheme for Open-ended Fund Companies and Real Estate Investment Trusts (the “Grant Scheme”) which has been in place since May 2021, OFC, an open-ended collective investment scheme established under the Securities and Futures Ordinance (Cap. 571 of the Laws of Hong Kong) (“SFO”), has become a more and more popular choice of investment structure among investment managers in recent years.

The Grant Scheme was launched three years ago and investment managers who have successfully incorporated OFC(s) or re-domiciled foreign funds into OFCs in Hong Kong are eligible to apply for reimbursement of eligible expenses during the period from 10 May 2021 to 9 May 2024. Market response for the Grant Scheme has been rather enthusiastic and the government’s funding support for local investments are widely welcomed by market players. With the soon approaching deadline, the government announced in the 2024-25 Budget that the Grant Scheme will be further extended for three years, so as to show continuous support and further encouragement to local asset management professionals and also to attract investments into Hong Kong. Eligible managers can now continue to enjoy the benefit under the Grant Scheme until 9 May 2027.

Fund managers should take note that the grant amount available for applications for the Grant Scheme made on or before 9 May 2024 will cover up to 70% of the eligible expenses (i.e. mostly including the establishment costs of the fund and professional fees of the service providers of the fund) for each application, subject to a cap of $1 million per OFC and a maximum of three OFCs per investment manager. However, for applications made on or after 10 May 2024, the cap for each application in respect of each OFC will be adjusted to $500,000 per private OFC and $1 million per public OFC, while still covering up to 70% of the eligible expenses as described above.

Investment Funds and the New Capital Investment Entrant Scheme

The Capital Investment Entrant Scheme issued by the Financial Services and the Treasury Bureau has been revamped and introduced in the 2023-24 Budget (the “New CIES”). The New CIES has started to accept applications from 1 March 2024, and since then we have received increasing enquiries from fund managers about setting up investment funds for investors who are interested in applying for the New CIES.

Among other eligibility criteria, the financial requirements for applicants under the New CIES include (i) he/she is absolutely beneficially entitled to net assets with a market value of HK$30 million or above throughout the two years preceding the date of lodging his application for the related net asset assessment, and (ii) he/she has to make a net investment of not less than HK$30 million in “Permissible Investment Assets” after 1 March 2024. Assets acquired before 1 March 2024 (even if its nature qualifies as Permissible Investment Assets) will not be counted towards the fulfillment of the minimum investment threshold.

Permissible Investment Assets

Each applicant under the New CIES is required to place HK$3 million into the New CIES Investment Portfolio, which is set up and managed by the Hong Kong Investment Corporation Limited. Such Portfolio will make investment in projects with a view to supporting the development of innovation and technology industries and other strategic industries which are beneficial to the long term development of Hong Kong’s economy.

For the remaining investment threshold, the applicant must invest a minimum of HK$27 million in any of the following financial assets and/or non-residential real estate:

1.       Equities: shares of companies listed on the Stock Exchange of Hong Kong and traded in Hong Kong Dollars (HKD) or Renminbi (RMB).

2.       Debt Securities: denominated in HKD or RMB issued or fully guaranteed by the Hong Kong Government or various publicly owned (wholly or partly) or Hong Kong-listed companies.

3.       Certificates of Deposits: denominated in HKD or RMB issued by authorised institutions in Hong Kong with a remaining term of maturity of not less than 12 months at time of acquisition, subject to a cap of 10% (i.e. HK$3 million) of the minimum investment threshold under the New CIES.

4.       Subordinated debt: denominated in HKD or RMB issued by certain authorised institutions in Hong Kong.

5.       Non-residential real estate: commercial or industrial (including pre-completion properties covering offices, commercial premises, retail premises and factories, but excluding land and multi-purpose real estate partly for residential purposes) in Hong Kong, subject to a cap of HK$10 million.

6.       Eligible collective investment schemes:

a.       SFC-authorised funds managed by Type 9 licensed corporations

b.       SFC-authorised real estate investment trusts managed by Type 9 licensed corporations

c.       SFC-authorised Investment-Linked Assurance Schemes issued by certain class of insurers

d.       OFCs registered in Hong Kong and managed by Type 9 licensed corporations

7.       Ownership interest in LPFs: registered in Hong Kong under the Limited Partnership Fund Ordinance (Cap. 637 of the Laws of Hong Kong).

However, prospective applicants and fund managers should take note that the aggregate amount of investments made in OFCs and/or LPFs that is eligible to be counted towards the minimum investment threshold under the New CIES (i.e. HK$30 million) is subject to a cap of HK$10 million.

Please do not hesitate to contact us if you are interested to know more about the above topics.