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Open a Hedge Fund in Hong Kong

Open a Hedge Fund in Hong Kong

By Vlad Cuc, specialist in company formation matters 

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. 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.  Upon request, we can offer more details about the industry regulations, as well as for setting up a company in Hong Kong. Below, you will find general information about hedge funds in Hong Kong.

 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 the structure of a Hong Kong hedge fund?

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 Financial Services Commission.

Starting a hedge fund is a process that requires several pre-launch steps and investors can request specialized assistance from our team of Hong Kong company formation agents. 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 expectation 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.

What is the regulatory framework for funds in Hong Kong?

Approval from the Hong Kong Securities and Futures Commission (SFC) is needed before engaging in such activities and investors who want to open a hedge fund need to obtain specific licenses. Fund management firms will also have to obtain licenses for their sub-managers or other individual representatives.

Private hedge funds can be regulated almost entirely through the requirements applicable to their licensed fund managers. The managers are the ones who receive proper licenses under the Securities and Futures Ordinance. In addition to this Ordinance, retail hedge funds are also subject to the Listing Rules, when they become listed. One of our specialists in company registration in Hong Kong can also give you relevant information about the regulatory bodies and the regulatory framework.

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

What are the requirements for hedge funds in Hong Kong?

The fund management company needs to be a licensed corporation and it can be a Hong Kong-registered company. The fund manager cannot operate under a sole trader or a partnership. The manager must pass the competence requirements set forth by the SFC, as well as the “fit and proper test” (such as proving it has a sound business structure, adequate internal control, qualified personnel, etc.).

The managing company will need to appoint two responsible officers/representatives who will need to obtain approval from the Securities and Futures Commission. In some cases the authorization for the fund may not be requested by the SFC, however, this only applies if the fund is marketed to professional investors.

The taxation of the hedge fund will depend on its structure and on whether or not the management company is also based in Hong Kong or is in a neutral tax jurisdiction. The Securities and Futures Ordinance in Hong Kong regulates the capital requirements for hedge funds: usually, a company that has received license to manage a fund will need to meet the requirements for the liquid capital computation (as of the end of the reporting month). The floor requirement set forth by the SFC can be HK$100,000 or HK$500,000, as well as HK$3,000,000 or HK$15,000,000 – depending on the activities the licensed company engages in.

A corporation licensed in Hong Kong by the SFC under the Securities and Futures Ordinance will need to submit a monthly or semi-annual financial return. This includes a special form for the computation of the company’s liquid capital.  A SFC licensed company that also engages in hedge fund activities will need to offer comprehensive information about its financial status within these forms submitted to the authorities.

Discussing these specific requirements that apply to companies licensed by the SFC is possible with one of our experts who specializes in hedge funds in Hong Kong.

The Hong Kong fund industry

Professional investors can prefer these alternative investment vehicles as they can provide a good growth curve. Hong Kong’s market characteristics can allow for a number of opportunities and entrepreneurs will use different investment strategies. The city is a leading Asian center for fund management and for companies engaged in the management of hedge funds in Hong Kong. Moreover, it is internationally recognized for its favorable tax environment.

Foreign investors in Hong Kong who choose to become hedge fund managers can request the services of a professional consultant and those of our company registration consultants in Hong Kong for assistance regarding the legal aspects and regulations. 

Our experts assist investors who wish to set up a company in Hong Kong, as well as investors who wish to know more about the hedge fund setup in Hong Kong.  As the location continues to remain an attractive one for hedge fund managers, our team is ready to assist investors who wish to explore their current options.

Fund statistics in Hong Kong

Many entrepreneurs choose to open a company in Hong Kong because of the favorable taxation regime and business climate. Hong Kong is a popular destination for investors and this is highlighted by the number of hedge funds in the Special Administrative Region, as shown in this statistic:

  • 204 equity funds and 162 bond funds were in place at the end of December 2023;
  • there was 1 guaranteed fund and 3 other specialized funds;
  • the total number of authorized funds at the end of December 2023 was 914.

The data was provided by the Financial and Services Commission according to its recent reports on mutual funds and unit trusts statistics. If you need more information on the number of licensees or registrants, or other data concerning hedge funds in Hong Kong, our agents can give you more details.

Our team offers a wide range of services, from those related to fund creation and licensing under the applicable rules, to services offered by our partner accountants in Hong Kong. You can reach out to our team for more information about our solutions for companies.

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