Changes Make Hong Kong OFCs The Ideal Choice For Hedge Funds

Hong Kong introduced Open-Ended Fund Companies ('OFCs") in 2018 to provide a domestic fund vehicle option for Hong Kong funds including hedge funds. Investment restrictions and custodian qualification requirements have limited hedge fund take-up. However, changes announced by the Securities and Futures Commission ("SFC") in September, 2020 make OFCs the most compelling fund vehicle choice now available to Hong Kong hedge funds. The changes remove investment restrictions, not only giving hedge funds structured as OFCs more flexibility in their investment choices but, perhaps more importantly, enhancing availability of exemptive relief from Hong Kong profits tax and tax certainty for hedge funds structured as OFCs. Hedge funds in the form of OFCs are now uniquely positioned to be exempt from Hong Kong profits tax in a way that non-OFC hedge funds are not. At the same time, these changes allow brokerage firms to act as custodians, thus allowing hedge funds to use