Hong Kong Limited Partnership Funds: Regulatory Framework and Licensing Considerations
Since its introduction in 2020, the Hong Kong Limited Partnership Fund ("LPF") regime has experienced significant growth, surpassing 2,000 registered funds and establishing itself as a leading fund vehicle for private equity, venture capital, real estate, infrastructure and other alternative investment strategies. As the regime has matured, one of the most common questions we continue to receive from fund sponsors, investment managers and advisers is: when do SFC licensing requirements apply to an LPF structure?
While the establishment of an LPF does not, in itself, trigger a licensing requirement, the regulatory analysis becomes more nuanced when considering who is responsible for the investment management function, where investment discretion is exercised, and whether any regulated activities are being conducted in Hong Kong. This article provides an overview of the circumstances in which licensing with the Securities and Futures Commission ("SFC") may be required, as well as common scenarios where licensing obligations may not arise. Based on market observations, the vast majority of Hong Kong LPFs are managed by SFC-licensed investment managers.
Hong Kong based Investment Management
When a Hong Kong LPF appoints an investment manager that is located in Hong Kong and that manger exercises discretionary authority over the fund’s investments, a Type 9 (Asset Management) license will generally be required.
Examples of activities indicating that Type 9 Regulated Activity (“RA”) is being conducted include:
Making investment decisions on behalf of the fund;
Exercising discretionary authority over portfolio transactions;
Operating an investment committee in Hong Kong;
Conducting portfolio management activities from Hong Kong; and
Managing investor capital for a fee.
Conversely, a Hong Kong Type 9 license may not be required where the investment management function is genuinely performed outside Hong Kong. This may arise where the investment manager is appointed and appropriately licensed or regulated in another jurisdiction (for example SEC, FCA, MAS or ASIC). In other cases, the investment manager may operate in a jurisdiction where local licensing requirements do not apply, or it may manage assets solely within a private group structure that falls outside the scope of local regulatory licensing requirements.
However, when assessing whether a Hong Kong licensing obligation arises, the SFC will generally focus on the substance of the arrangement rather than its legal form. Accordingly, the key consideration is not merely where the investment manager is incorporated, but where the investment management activities are actually conducted and where investment discretion is exercised. If investment decisions are effectively made by personnel located in Hong Kong, the SFC may conclude that asset management activities are being carried on in Hong Kong notwithstanding the appointment of an offshore investment manager. As such, fund sponsors should carefully analyse the location of their investment decision-making functions, investment committee meetings and portfolio management activities when determining whether a Type 9 license is required.
Genuine Family Office Structures
The regulatory treatment of family offices in Hong Kong is frequently misunderstood. There is no specific “family office exemption” under the Securities and Futures Ordinance (“SFO”). Licensing requirements in Hong Kong are determined by the activities undertaken, rather than by the legal structure itself, with each arrangement assessed on a case-by-case basis. According to guidance issued by the SFC, many single-family offices are able to operate without an SFC license because they typically manage assets belonging to a single family, they do not provide services to third-party clients, and may fall within the intra-group carve out available for Type 9 RA. In addition, some family offices may not be regarded as carrying on business for regulatory purposes where they operate solely for the benefit of one family and do not hold themselves out as a commercial asset manager.
By Contrast, a multi-family office provides investment management services to multiple families and are commonly operated as a commercial enterprise for profit. As a result, the multi-family office is more likely to be viewed as conducting regulated activity to external clients. Where the office manages portfolios comprising securities or futures contracts, providing investment advice, or undertakes fundraising and distribution activities licensing requirements under the SFO may arise. Consequently, while single family offices can structure their operations outside of the scope of Hong Kong’s licensing regime, multi-family offices are significantly more likely to fall within the SFC’s regulatory regime and require appropriate licenses.
Private Funds & Fundraising Activities
The Hong Kong LPF regime was introduced under the Limited Partnership Fund Ordinance to provide an onshore Hong Kong Fund Vehicle designed primarily for private investment funds, particularly private equity, venture capital, real estate, infrastructure and alternative investment strategies. An LPF is registered with the Companies Registry, is structured as a limited partnership, and is intended to facilitate the pooling of capital from sophisticated investors for long-term investment purposes.
Hong Kong LPFs are commonly offered pursuant to private placement exemptions, such exemptions relate to the offering of fund interests and do not themselves remove licensing considerations relating to fundraising activities. In practice, LPF interests are often marketed either by a Type 1 (Dealing in Securities) intermediary or by a Type 9 (Asset Management) licensed investment manager where the fundraising activity is conducted as an activity incidental to its asset management business.
