Hong Kong Open-ended Fund Companies: Poised to Stand On Their Own Feet
Last April, the Hong Kong government announced its second reduction in subsidies for open‑ended fund companies (OFCs). Under the revised scheme, the maximum subsidy was set at HK$300,000 (US$38,500) for public OFCs and HK$150,000 (US$19,250) for private OFCs.
The original subsidy scheme, introduced in 2021, provided a uniform cap (both public and private OFCs) of HK$1 million (US$128,250).
In terms of the first reduction, in May 2024, the grant parameters were revised to HK$1 million for public OFCs, HK$500,000 for private OFCs, and HK$8 million for REITs. The latest revisions therefore represent a substantial reduction from the previous levels.
The reduction is particularly significant for private companies, which initially benefited from the HK$1 million cap under the 2021 scheme. Their cap has now been lowered to HK$150,000, amounting to an 85% decrease.
Many observers anticipated a sharp decline in registrations, assuming that the primary driver of growth had been the government subsidy. However, the Hong Kong market appears to have embraced OFCs as a legitimate investment vehicle. Even after the subsidy was reduced, the monthly number of new registrations remained relatively stable.
The reduction in the grant scheme was announced on 31 March 2025 and took effect on 11 April 2025. During the short window between announcement and implementation, a large number of OFCs, totaling 29, were registered. Immediately after the reduction came into force, the number of newly registered OFCs dropped by half in May. However, registrations rebounded in June, returning to the average level observed prior to the reduction. In addition, there is another sharp increase in December 2025 and 37 OFCs were registered that month. This suggests that the impact of the revised grant scheme may be smaller than initially anticipated.
A similar pattern was observed following the first reduction of the grant scheme in May 2024. The average number of registered OFCs declined slightly over the subsequent three months, but rebounded the following year and eventually exceeded the pre‑reduction average.
Time Periods | Average Registered OFC |
First Reduction | |
3 months before First Reduction (Feb 24 – Apr 24) | 23.6 |
3 months after First Reduction (Jul 24 – Sep 24) | 24.6 |
1 year before First Reduction (May 23 - Apr 24) | 16.25 |
1 year after First Reduction (Jul 24 - Jun 25) | 22.25 |
Second Reduction | |
3 months before Second Reduction (Jan 25 – Mar 25) | 20.6 |
3 months after Second Reduction (Jun 25 – Aug 25) | 26 |
That said, with or without additional incentives, future growth in OFCs can be sustained due to OFC’s unique appeals. Compared with Hong Kong’s Limited Partnership Funds (LPF) and Singapore’s Variable Capital Company (VCC), OFCs have several structural advantages:
OFCs vs LPFs
It is often believed that the availability of Limited Partnership Funds (LPFs), which provide greater operational flexibility and are subject to lighter regulatory oversight by the Securities and Futures Commission (SFC), further diminishes the appeal of OFCs.
Time periods | 2021 | 2022 | 2023 | 2024 | 2025 | 2026 (until June) |
Average number of OFCs registered | 3.5 | 5.58 | 11.5 | 21.58 | 25.33 | 19.83 |
This assumption is not always correct. There has not been a significant drop in OFCs because of the prevalence of LPFs. So far in 2026, on average, there are 19.8 OFCs registered per month. This number is still significantly higher than that in 2022 and 2023.
The key advantage of OFCs lies in its umbrella structure: it is capable to house several sub-funds as long as their assets are ring-fenced. It is thus ideal for hedge fund managers and liquid trading strategies. In fact, over 94.5% of OFCs have at least one sub-fund, and around 24% of them have three or more sub-funds.
In addition, the OFC is a corporate structure with separate legal personality and limited liability. This means that an OFC can open bank accounts, hold securities, enter ISDA master agreements, and signs custody arrangements in its own name. The LPF cannot do any of this; everything needs to flow through the General Partner. Therefore, for managers dealing with sophisticated prime brokers, derivative counterparties, or custodians who conduct their own legal entity due diligence, the OFC’s clean legal personality is easier to document and onboard.
OFCs vs VCCs
While it is true that Singapore’s Variable Capital Company (VCC) offers more enduring advantages through tax benefits and structural flexibility, the OFC’s decisive competitive advantage is its China proximity. No other fund domicile, whether it is Singapore or Cayman, offers the same regulatory bridge to mainland China’s capital markets. In addition, Singapore’s VCC framework has not developed a meaningful ETF ecosystem yet: unit trusts remain the dominant structure for the listed retail funds. But Hong Kong’s OFCs is a purpose-built instrument for the next generation of ETF issuance: it eliminates the trustee layer, enables simpler investor due diligence, and has umbrella sub-fund architecture.
Therefore, OFCs can serve China-focused strategies and retail ETFs effectively, and for any manager whose mandate involves raising capital from or distributing into mainland, OFCs in Hong Kong’s ecosystem remains structurally irreplaceable.
David Cameron Law Office (DCLO) is a Hong Kong law firm with a strong focus on investment funds, advising on both Open-ended Fund Companies (OFCs) and Limited Partnership Funds (LPFs). Since the introduction of these regimes, the firm has acted for a broad range of domestic and international clients establishing Hong Kong fund structures. Through its association with offshore law firm George and Partners, DCLO is uniquely positioned to provide coordinated Hong Kong and offshore legal advice under one umbrella for cross-border fund structures.
