The New Limited Partnership Fund Regime in Hong Kong

On 9 July 2020, the LegCo passed the Limited Partnership Fund Bill, establishing a limited partnership fund (LPF) regime which enables funds to be constituted and registered in Hong Kong in the form of limited partnerships. The new LPF Ordinance will come into effect on 31 August 2020.

The LPF Ordinance is welcomed by many as a much-needed step towards filling the gap in the legal framework in Hong Kong for the structuring of private equity funds. Prior to the introduction of the LPF Ordinance, managers seeking to set up a closed-ended private equity funds from Hong Kong would, as a matter of course, choose the Cayman Islands exempted limited partnership (ELP) as the fund vehicle. It was the de-facto choice as the Cayman Islands ELP was widely regarded as the “gold standard” in the private equity world, favoured by (especially institutional) investors, well supported by an established legal and administrative infrastructure in Hong Kong and throughout the region, and based on a reputable, widely accepted, common-law jurisprudence.

With the introduction of the LPF regime, managers now have a viable alternative for choice of fund vehicle. Hong Kong’s well established legal and financial infrastructure, equally well recognised common-law judicial system, simple and transparent tax regime, should, in theory, make it a serious rival to the ELP. The fact that managers regulated under Hong Kong laws can now also match the jurisdiction of the fund vehicle they are managing presents as an added bonus.

However, when faced with the choice, the first question on many managers’/sponsors’ minds will be – what is the difference between the two regimes, and importantly, how does the LPF stack up against the incumbent? In this article, we take a quick tour through both regimes on a side-by-side basis, and will point out some important differences and similarities between the two.