Open a Hedge Fund in Hong Kong - Main Steps & Conditions

Investors who want to open a hedge fund in Hong Kong must observe certain rules and regulations regarding the set-up process and management of the fund. Our experts in company formation in Hong Kong can assist with information on hedge fund requirements, including for management companies with regard to hedge funds.

Quick Facts
Class	The hedge fund is a type of collective investment fund
Types of hedge funds	Global macro hedge fund, equity hedge fund, relative value hedge fund, activist hedge fund
Types of investments	Equity securities, debt, commodities, derivatives, real estate.
Investment strategy	Multiple strategies, typically involving more risk
Common investment strategies	Long-short strategy, fixed-income strategy, etc.
Fund regulating agency in Hong Kong	The Securities and Futures Commission (SFC)
Relevant hedge fund laws in Hong Kong	The Fund Manager Code of Conduct and others
Minimum investment requirements	Typically applicable, with a higher minimum investment compared to other funds
Hedge fund advantages	Adaptable to various market conditions, investment risk diversification, professional management, etc.
Licensing	As per the types of regulated activities (dealing in securities, asset management, etc.).
Fund manager use	Mandatory
Fund manager competence	Must comply with the fit and proper criteria imposed by the SFC.
Management experience	Minimum proven management skills, relevant recognized industry qualifications, etc.
Investors to whom a hedge fund is accessible in Hong Kong	Typically professional investors
Offshore hedge fund management from Hong Kong	Yes, possible.

What is a hedge fund in Hong Kong?

A hedge fund is a type of fund that is used to accumulate capital from institutional investors and/or accredited investors and then use it to invest in a wide array of assets, often based on complex portfolios.

How is a hedge fund different from other types of funds?

Our team lists some key differences below:

-The fund can use non-traditional strategies;
-It will aim to achieve absolute returns;
-Liquidity is mostly monthly or quarterly;
-It is a private vehicle with minimum requirements and subject to licensing.

Who can open a hedge fund in Hong Kong?

Qualified individuals and companies can open a hedge fund in Hong Kong. The main requirements concern proper licensing and compliance for hedge fund managers, as set forth by the Securities & Futures Commission.

Must I open a company in Hong Kong when setting up a hedge fund?

Hedge funds managed from the HKSAR will generally involve a step for company formation in Hong Kong, for the purpose of setting up a fund management company that will be licensed for hedge fund management purposes.

What is the structure of a Hong Kong hedge fund?

A hedge fund in Hong Kong is structured according to its target investors. The fund itself can be set up as a limited partnership, and it can be managed by an investment manager (individual or company). Common types of hedge funds include the simple fund and the mutual fund.

An offshore hedge fund in Hong Kong can use a mutual fund company or a limited partnership set up in the Cayman Islands, which uses a two-tier management structure in which the Investment company is a Hong Kong company that holds a suitable license from the Securities and Futures Commission.

What are the steps required to open a hedge fund in Hong Kong?

Some of the issues that are worth considering are listed below:

The fund structure: investors can choose this based on the possible investors, the investor expectations and the operational factors.
The risk: proper risk management is essential for these types of funds, and proper business structure management is important.
The personnel: qualified personnel and a sound internal regime will also play an important role in the evolution of the fund.
Liability: hedge fund managers can be liable for engaging in insider dealing, false trading, disclosure of information, price-rigging, and other activities.
Money laundering: the Anti-Money Laundering Ordinance applies to licensed hedge fund managers.
Marketing: hedge funds in Hong Kong can be marketed to local and foreign recipients; in general, private hedge funds cannot be marketed to the Hong Kong public.

The video below shows how to set up a hedge fund in Hong Kong:

Must I obtain special approvals or licenses for a hedge fund in Hong Kong?

Yes. According to the Securities & Futures Commission (SFC), a hedge fund must be duly authorised before being marketed to the public. Important issues for licensing purposes concern:

-The fund manager’s qualifications;
-The amount of assets managed by the fund;
-The risk management profile;
-International control systems used by the hedge fund management company;
-Measures to ensure the disclosure of information, and others.

What license do I require as a hedge fund manager?

Generally, hedge fund managers in Hong Kong must obtain an asset management license from the SFC. If the business model demands it, the fund manager will have to be licensed for other types of activities as well (such as dealing in securities or futures contracts).

What are some specific requirements for hedge funds in Hong Kong?

Hedge fund authorization in Hong Kong is subject to clear criteria, among which:

-The assets under management must be no less than US$100 million (in the case of a fund manager for a single hedge fund or fund of a hedge fund – see below for more details on the latter);
-Professional expertise for the fund manager and their key personnel is mandatory;
-A representative agent must be appointed. These individuals must have satisfactory know-how. Selling agents must also have proper training.

What is a fund of hedge fund?

Funds of hedge funds are set up and used when the purpose is to pool assets from multiple hedge funds in Hong Kong, using strategic allocation under professional management.

A fund of hedge funds must invest in at least five underlying funds (authorised or unauthorised single hedge funds). Investing in other funds of hedge funds is not permitted. Other conditions also apply.

For more information about investment funds in Hong Kong or if you have any questions regarding business matters, please contact our company registration representatives in Hong Kong.