LPF vs OFC: A Comparative Analysis of Hong Kong’s Popular Investment Vehicles

Open-ended fund companies (OFCs) and limited partnership funds (LPFs) are two of the most popular investment vehicles in Hong Kong’s investment fund landscape. OFCs were introduced in 2018 and have gained popularity due to their flexibility and suitability for different types of investment strategies. OFCs are particularly well-suited for hedge funds and other alternative investment strategies, as they offer greater flexibility in terms of fund management and investor participation. LPFs, on the other hand, have been around for much longer and are commonly used for private equity and real estate investment. Both OFCs and LPFs are popular with international investors and fund managers, as Hong Kong offers a favourable regulatory and tax environment for investment funds. OFCs are regulated by the Securities and Futures Commission (SFC), while LPFs are registered with the Companies Registry and must comply with the Limited Partnership Fund Ordinance (LPFO), which is administered by the Company Registry (CR). This regulatory oversight helps ensure that investors are protected and that funds are managed in accordance with the law.


LPF vs OFC: Comparison of the key factors

Key OperatorsTwo Directors approved by SFCDirectors/General Partner
Investment ManagerMust delegate investment management to
licensed or registered investment manager.
Appoint investment manager who can be the
GP or another person
CustodianMust entrust investment property to a
No requirement to appoint a custodian,
but the GP must ensure proper asset custody.
Investment RestrictionsCannot be for general commercial or
industrial purposes.
No investment restrictions
Legal PersonalityHas separate legal personality.No separate legal personality, GP has
unlimited liability
LiabilityShareholders not responsible for fund
debts and liabilities.
Limited partners not liable beyond their
agreed contribution, provided they don’t participate in fund management
outside safe harbours.
Flexibility of ContractNot as flexible, with restrictions on
custodian and investment manager, termination and dissolution requirements,
and corporate administrative matters.
Generally has freedom of contract with
partners regarding fund operation
Post Establishment ChangesSeveral changes require SFC approval.No approval needed for changes, but
certain changes must be notified to Companies Registry
RegimeMust register and be approved by SFC.Registration not compulsory under LPFO.
Approval timeApproximately one month, based on
required document submission.
Takes approximately 3-4 weeks, depending
on commercial considerations.

Overview of Hong Kong’s Fund Unified Tax Exemption

Exemption EligibilityFunds must meet the definition of a fund under the IRO and be structured as an arrangement where contributions and profits are pooled
Control RequirementsFunds must not be under the day-to-day control of participating persons and must have a purpose to enable them to participate in profits
Qualifying TransactionsThe exemption applies to profits earned from qualifying transactions, such as securities, futures contracts, and foreign currencies, which are specified in Schedule 16C to the IRO
Eligibility ConditionsFunds must meet certain conditions to qualify, such as having qualifying transactions carried out or arranged in Hong Kong by a licensed person or being a qualified investment fund with a certain number of independent investors and capital commitments
Incidental TransactionsIncidental transactions may also be eligible but are subject to certain limits on the trading receipts
OFC ExemptionAn OFC may also be exempt from profits tax on transactions in non-schedule 16C assets if it meets the definition of a fund under the IRO
OFC LimitationsHowever, the exemption is not available to an OFC that carries on direct trading or business in non-schedule 16C assets or holds them to generate income
At Heinbro, we have extensive knowledge and experience in registering OFCs and LPFs, and have successfully assisted numerous clients with their applications. We recognize the significance of being well-prepared for regulatory changes and are eager to support your firm with all matters related to OFCs and LPFs in Hong Kong’s investment fund landscape. If you have any questions or require additional information, please don’t hesitate to contact us.

Hong Kong Office

Senior Management

Ⓒ 2021 - All Rights Are Reserved