Our Insight
Hong Kong’s LPF Regime: Progress or Missed Opportunity?
Summary: A critical look at the Limited Partnership Fund (LPF) regime introduced in Hong Kong in 2020. We explore uptake trends, investor sentiment, and whether the LPF has genuinely positioned Hong Kong as a competitive alternative to offshore jurisdictions like the Cayman Islands.
Content :
When the Limited Partnership Fund (LPF) regime launched in August 2020, it was pitched as a breakthrough—Hong Kong’s answer to the Cayman Islands and Singapore in the fund structuring landscape. Over 700 LPFs have since been registered, a promising start. However, does the regime truly offer a viable alternative for fund sponsors weighing offshore jurisdictions?
At Shirley Choi & Co., we have advised fund managers launching both Hong Kong and offshore vehicles. Here is our take on the state of play—and what needs to change.
What’s Working
- Streamlined Setup: Registration through the Hong Kong Companies Registry is remarkably efficient, often completed in days.
- No Investment Restrictions: The LPF framework is commercially flexible, accommodating PE, VC, hedge, real estate, and hybrid strategies.
- Tax Efficiency: LPFs qualify for Hong Kong’s zero capital gains tax policy, and profits can be tax-exempt if managed by a licensed entity under the Unified Fund Exemption.
Friction Points Holding Sponsors Back
- SFC Licensing Burden: Fund managers often require a Type 9 license, even if managing only professional investors. This deters emerging sponsors unfamiliar with Hong Kong’s compliance demands.
- Limited Global Recognition: Cayman remains the default for institutional investors and overseas LPs, making LPFs less competitive for cross-border fundraising.
- Lack of Market Infrastructure: Hong Kong administrators, banks, and custodians are still building experience with LPFs compared to their offshore counterparts.
LPF vs. Cayman: Strategic Trade-offs
| Feature | LPF (Hong Kong) | Exempted LP (Cayman Islands) |
|---|---|---|
| Tax treatment | No income/capital gains tax | No income/capital gains tax |
| Regulatory body | Companies Registry + SFC | General Registry + CIMA |
| LP familiarity (global) | Growing, but limited | Widely recognised standard |
| Setup speed | Fast (days) | Fast (days at Shirley Choi & Co. with offshore counsel) |
where Improvement Is Needed
For LPFs to truly rival offshore vehicles, we advocate:
- A clearer, lighter licensing path for single-fund managers with limited investor pools
- International promotion to build investor familiarity
- More explicit guidance on AML compliance, outsourcing, and governance best practices
Final Thought
The LPF regime is a strong step forward—but not yet the endpoint. With targeted regulatory refinement and broader market support, Hong Kong can emerge as a genuine hub for private funds—not merely a gateway to offshore jurisdictions