By Vlad Cuc, specialist in company formation matters
A hedge fund is a type of fund that is used to accumulate capital from institutional investors and/or accredited investors and then use it to invest in a wide array of assets, often based on complex portfolios.
Professional investors can prefer these alternative investment vehicles as they can provide a good growth curve. Hong Kong’s market characteristics can allow for a number of opportunities and entrepreneurs will use different investment strategies.
Investors who want to open a hedge fund in Hong Kong must observe certain rules and regulations regarding the set-up process and management of the fund. The city is a leading Asian center for fund management which is internationally recognized for its favorable tax environment.
Foreign investors in Hong Kong who choose to become hedge fund managers can request the services of a professional consultant and those of our company registration consultants in Hong Kong for assistance regarding the legal aspects and regulations.
The video below shows how to set up a hedge fund in Hong Kong:
What is the structure of a Hong Kong hedge fund?
A hedge fund in Hong Kong is structured according to its target investors. The fund itself can be set up as a limited partnership and it can be managed by an investment manager (individual or company). Common types of hedge funds include:
-the simple fund;
-the mutual fund.
Hedge funds can also be private, or non-retail, as well as retail hedge funds.
Starting a hedge fund is a process that requires a number of pre-launch steps and investors can request specialized assistance from our team of Hong Kong company formation agents. Some of the issues that are worth considering are listed below:
•the fund structure: investors can choose this based in the possible investors, the investor expectation and the operational factors.
•the risk: proper risk management is essential for these types of funds and proper business structure management is important.
•the personnel: qualified personnel and a sound internal regime will also play an important role in the evolution of the fund.
•liability: hedge fund managers can be liable for engaging in insider dealing, false trading, disclosure of information, price-rigging and other activities.
•money laundering: the Anti-Money Laundering Ordinance applies to licensed hedge fund managers.
•marketing: hedge funds in Hong Kong can be marketed to local and foreign recipients; in general, private hedge funds cannot be marketed to the Hong Kong public.
What is the regulatory framework for funds in Hong Kong?
Approval from the Hong Kong Securities and Futures Commission (SFC) is needed before engaging in such activities and investors who want to open a hedge fund need to obtain specific licenses. Fund management firms will also have to obtain licenses for their sub-managers or other individual representatives.
Private hedge funds can be regulated almost entirely through the requirements applicable to their licensed fund managers. The managers are the ones who receive proper licenses under the Securities and Futures Ordinance. In addition to this Ordinance, retail hedge funds are also subject to the Listing Rules, when they become listed. One of our specialists in company registration in Hong Kong can also give you relevant information about the regulatory bodies and the regulatory framework.
What are the requirements for hedge funds in Hong Kong?
The taxation of the hedge fund will depend on its structure and on whether or not the management company is also based in Hong Kong or it is in a neutral tax jurisdiction. The Securities and Futures Ordinance in Hong Kong regulates the capital requirements for hedge funds: usually, a company that has received license to manage a fund will need a paid-up capital of 5,000,000 HK$ and will also need a minimum liquid capital.
The managing company will need to appoint two responsible officers/representatives who will need to obtain approval from the Securities and Futures Commission. In some cases the authorization for the fund may not be requested by the SFC, however, this only applies if the fund is marketed to professional investors.
Many entrepreneurs choose to open a company in Hong Kong because of the favorable taxation regime and business climate. Hong Kong is a popular destination for investors and this is highlighted by the number of hedge funds in the Special Administrative Region, as shown in this statistic:
•in 2014, there were approximately 778 hedge fund managers in Hong Kong.
•in 2012, their number was 676.
•the total value of hedge fund assets was approximately 120.9 billion USD.
•investors from the United States and Europe provided for more than 60% of the total hedge funds assets under management.
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