Asset Management Services
Carlyon Asset Management Limited has collaborated with numerous professional investors and high-net-worth clients, committed to protecting their assets and assisting them in achieving diversification across different sectors. Our company partners with multiple major banks, asset management firms, and private equity institutions to provide esteemed clients with valuable advice on a range of private funds. Our investment team also possesses prudent investment experience across various asset classes and investment strategies. Carlyon has established QFLP pilot programs in both Beijing and Hainan, focusing on investments in private equity and pre-IPO projects. The Group has also successfully set up multiple Hong Kong Limited Partnership Funds (LPFs), with assets under management approaching USD 100 million.
Limited Partnership Fund (LPF)
On August 31, 2020, the Hong Kong Limited Partnership Fund Ordinance (Chapter 637) ("LPFO") officially came into effect. This modern and efficient legal framework facilitates the establishment of onshore funds in Hong Kong in the form of limited partnerships, known as Limited Partnership Funds ("LPFs"). Based on current market response, this is favorable news for Chinese investors. Market participants exploring investment opportunities in the Greater Bay Area often view the LPFO and the Cross-boundary Wealth Management Connect Scheme as complementary policies.
The Cayman Islands Exempted Limited Partnership ("ELP") has long been the preferred choice for Chinese investors establishing offshore private equity funds. However, the introduction of Hong Kong's LPF regime provides investors with a more diverse range of options for offshore fund domicile. This development will strengthen Hong Kong's position as a leading center for asset management and private equity investment in Asia.
What is a Limited Partnership Fund?
The application scenarios for LPF companies are extensive. Besides serving as vehicles for venture capital and private equity investment funds, they are also suitable for merger and acquisition funds, real estate funds, credit funds, and funds investing in cryptocurrencies and virtual assets.
Characteristics of a Limited Partnership Fund
The basic structure of an LPF must include one General Partner ("GP"), at least one Limited Partner ("LP"), one Investment Manager, one Anti-Money Laundering Officer, and an Independent Auditor.
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General Partner ("GP")
An LPF must have one GP responsible for the ultimate management and control of the fund. The GP bears unlimited legal liability for the debts and obligations of the fund. The GP can be a natural person, a private company, a limited partnership, or another limited partnership fund. The GP may choose to act as the Investment Manager itself, responsible for the day-to-day fund management. Otherwise, the GP must appoint another individual or company to serve as the Investment Manager.
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Limited Partner ("LP")
The fund must have at least one LP at the time of registration. LPs have no right to participate in the day-to-day management or control of the fund's assets but are entitled to share in the fund's income and profits. As the name implies, an LP's liability for the fund's debts and obligations is limited to their agreed capital contribution. However, if an LP participates in activities deemed as managing the fund, both the LP and the GP may be held jointly and severally liable for debts and obligations arising from such management activities by the LP.
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Investment Manager
Responsible for executing the day-to-day investment management functions of the fund. Can be an individual (aged 18 or above, Hong Kong resident/company/registered non-Hong Kong company) appointed by the GP. If the GP itself meets the requirements, it can also serve as the Investment Manager.
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Note: While the LPFO does not explicitly specify licensing requirements for the Investment Manager, according to the Hong Kong Securities and Futures Ordinance (Chapter 571) and the SFC circular, if the Investment Manager conducts regulated asset management activities in Hong Kong (such as fundraising, financing, sales, and investment management), it still needs to apply for an asset management license from the SFC.
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Anti-Money Laundering Officer
This officer must be appointed by the GP to implement anti-money laundering measures related to customer due diligence and record-keeping. The officer bears ultimate responsibility for complying with the stipulated anti-money laundering obligations.
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The officer can only be: (1) an institution authorized by the Hong Kong Monetary Authority, (2) a company licensed by the SFC, (3) an accounting professional, or (4) a legal professional.
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Independent Auditor
The financial statements of the LPF must be audited annually by an independent auditor. The auditor should be a practice unit as defined by the Hong Kong Professional Accountants Ordinance and must be independent of the GP and the Investment Manager.
Tax Incentives
Funds established under the LPFO enjoy unique tax advantages.
For example, provided they meet the definition of a "fund" under Section 20AM of the Inland Revenue Ordinance and satisfy the specified conditions of the unified fund exemption regime, they can be exempted from Profits Tax.
For funds registered under the LPFO, no capital registration fees and/or stamp duty are levied on profit distributions, or on capital contributions, transfers, or withdrawals of partnership interests to or from the fund.
Furthermore, the Legislative Council passed the Inland Revenue (Amendment) (Tax Concessions for Carried Interest) Bill 2021 on April 28, 2021. This bill aims to amend the Inland Revenue Ordinance (Chapter 112) to implement a 0% Profits Tax rate on eligible carried interest received by qualified recipients of private equity funds. Regarding Salaries Tax, 100% of the eligible carried interest will not be included as employment income for Salaries Tax calculation. This preferential tax treatment takes effect retrospectively and applies to eligible carried interest received by or accrued to qualified recipients on or after April 1, 2020.
Policy Encouraging Fund Re-domiciliation to Hong Kong
On July 2, 2021, the Hong Kong Government gazetted a new mechanism for the re-domiciliation of offshore funds to Hong Kong, facilitating their registration as LPFs.
Under this mechanism, the re-domiciled fund remains the same legal entity. Re-domiciling to Hong Kong does not prejudice or affect the identity or continuity of the fund previously established or registered. Contracts entered into and resolutions passed before re-domiciliation are unaffected, and the fund's rights, functions, liabilities, obligations, and property remain intact. Fund companies do not need to liquidate the original fund, nor do investors need to transfer their interests from the original fund to the fund operating in Hong Kong. After re-domiciliation, these funds will be deregistered in their original place of registration and will have the same rights and obligations as other newly established LPFs in Hong Kong.
This new re-domiciliation mechanism was approved by the Legislative Council and took effect on November 1, 2021.
The Carlyon Group provides investors with "one-stop" dedicated services for establishing funds in Hong Kong, assisting in connecting with professional service organizations, and offering public relations and market promotion opportunities. If you wish to learn more about LPFs, are seeking a fund manager for your LPF, or are interested in becoming an Investment Manager, please feel free to contact us directly (Phone: +852 2112 9602, Email: info@carlyongroup.com).