Digital Assets & Virtual Assets
RWA Tokenisation in Hong Kong: Legal Framework and Structuring Guide
Introduction to the LPF Regime
The Limited Partnership Fund (LPF) regime, established by the Limited Partnership Fund Ordinance (Cap. 637) in August 2020, provides Hong Kong with a domestic fund vehicle purpose-built for private equity, venture capital, and other alternative investment strategies. Prior to the LPF's introduction, most Hong Kong-managed closed-end funds were structured offshore — predominantly in the Cayman Islands.
The LPF has attracted significant interest from fund managers who wish to domicile their fund structure onshore in Hong Kong, benefitting from the city's legal system, regulatory credibility, and proximity to deal flow in Greater China and the broader Asia-Pacific region.
Key Features of the LPF
Legal Structure
An LPF is a limited partnership registered in Hong Kong under the LPF Ordinance. It consists of:
- One or more general partners (GPs), who manage the fund and bear unlimited liability for the fund's obligations
- One or more limited partners (LPs), who contribute capital and enjoy limited liability provided they do not participate in management
The GP must be incorporated in Hong Kong or have its registered office in Hong Kong. Commonly, a Hong Kong-incorporated special purpose vehicle serves as the GP.
Registration Requirements
An LPF must be registered with the Companies Registry. Registration requires:
- A prescribed application form
- The fund name (which must include "LPF" or "Limited Partnership Fund")
- Details of the GP and the Responsible Person (RP)
- A description of the investment strategy
- Payment of the registration fee
Registration is typically completed within a few days, making the LPF faster to establish than many offshore structures.
Responsible Person
A distinctive feature of the LPF regime is the requirement for a Responsible Person — an SFC-licensed corporation or registered institution with Type 9 (asset management) regulated activity — to carry out anti-money laundering and know-your-customer (AML/KYC) functions for the LPF. The RP must also comply with the applicable AML ordinances and guidelines.
In practice, the investment manager of the LPF (if SFC-licensed) often acts as the RP, simplifying the compliance structure.
Privacy of Beneficial Ownership
Unlike Hong Kong company share registers, LPF limited partner registers are not publicly accessible. This provides a degree of privacy that is comparable to offshore structures and is an important feature for family office investors and high-net-worth individuals.
Tax Considerations
LPFs are fiscally transparent for Hong Kong profits tax purposes: the fund itself is not a taxable entity. Instead, profits are attributed to partners according to their partnership interests. LPs that are not carrying on a business in Hong Kong through the LPF are generally not subject to Hong Kong profits tax on their share of fund profits.
In addition, the Inland Revenue (Amendment) (Tax Concessions for Carried Interest) Ordinance 2021 provides for a concessionary tax rate of 0% on qualifying carried interest received by or accruing to qualifying persons from qualifying funds — including LPFs. This makes the LPF regime highly competitive for fund managers structuring their performance fee arrangements in Hong Kong.
LPF vs Cayman ELP: A Comparison
The principal comparison for Hong Kong managers considering a domestic structure is the Cayman Exempted Limited Partnership (ELP). Key differences include:
- Jurisdiction: LPF is a Hong Kong entity; Cayman ELP is offshore
- Regulatory environment: LPF requires an SFC-licensed RP; Cayman ELP has CIMA registration requirements
- Investor familiarity: Cayman structures are more familiar to global institutional investors; the LPF is gaining acceptance, particularly among Asian and Mainland Chinese investors
- Tax: Both are fiscally transparent; Hong Kong's carried interest concession is unique to the LPF regime
- Cost: LPF registration costs are modest; Cayman ELPs have ongoing CIMA annual fees and economic substance considerations
LPF in the Investment Management Ecosystem
An LPF can be managed by an SFC-licensed investment manager based in Hong Kong, creating a fully onshore fund management structure. This is increasingly attractive to managers seeking to demonstrate regulatory credibility to investors, particularly institutional investors in the Mainland who may prefer a regulated Hong Kong structure over an offshore vehicle.
How Alan Wong LLP Can Assist
Alan Wong LLP's investment funds team advises fund managers, GPs, and institutional investors on LPF formation, documentation, regulatory compliance, and investor relations. We assist with fund structuring, limited partnership agreement drafting, Responsible Person arrangements, SFC licensing, and carried interest structuring. Our team has established a track record in LPF formation across a range of private equity, real assets, and venture capital strategies.
