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Creating and accumulating wealth with diversified fund structures



Last year, the assets managed by Hong Kong stood at HK$35.5 trillion (US$4.6 trillion), which is 12 times the size of our GDP. The Hong Kong Special Administrative Region Government strives to develop Hong Kong into a premier international asset and wealth management centre in the Asia-Pacific region. Through an array of measures to create and accumulate wealth, we have been strengthening Hong Kong’s competitiveness in the international asset management market. Among these measures, the introduction of new fund structures, including open-ended fund company (OFC), is of significant importance.

In the past four years since our OFC regime commenced operation on 30 July 2018, 88 OFCs have set up in or re-domiciled to Hong Kong, with an additional 160 sub-funds. The number of OFCs set up in Hong Kong has increased rapidly, as the number of registered OFCs recorded a more than four-fold year-on-year increase as at end July this year. 26 exchange-traded funds (ETFs) have been set up under the OFC regime, with a total market capitalisation amounting to HK$12 billion.

The OFCs set up in Hong Kong have a diversified portfolio with investments in areas including equities and fixed income bonds across Asia, the United States, Europe and emerging markets. Apart from traditional ones, OFCs also invest in a wide range of other sectors such as technology, mining, environmental protection, healthcare and artificial intelligence, to name just a few.

Advantages of an OFC
As an investment fund established in corporate form with variable share capital and limited liability, an OFC enjoys the following benefits:

  • Tax concessions: OFCs are exempted from profits tax in Hong Kong
  • Cost-savings: compared to funds of offshore structures, there is no duplication of service providers or fees
  • Easy management: annual returns and mandatory annual general meetings are not required
  • Facilitate international distribution: corporate structures are more familiar to overseas investors
  • Cater for public/private funds: including listed and unlisted funds, hedge funds, private equity funds and closed-end funds
  • Eligible Products under the Cross-boundary Wealth Management Connect Scheme in the Greater Bay Area and ETF Cross-listing Scheme

Providing subsidies for OFCs set up in or re-domiciled to Hong Kong
To further enhance the attractiveness of the OFC regime, a three-year grant scheme was launched in May 2021 to provide subsidies to cover 70% of the expenses paid to local professional service providers for OFCs set up in or re-domiciled to Hong Kong, subject to a cap of $1 million per OFC. Since its inception, subsidies have been provided to 52 OFCs set up in/re-domiciled to Hong Kong.

With the introduction of the grant scheme, and considering that OFCs are qualified products under the Cross-boundary Wealth Management Connect Scheme and the cross-listing scheme of ETFs, we have seen greater interest among the industry in this fund structure and expect further growth of OFCs.

29 August 2022