OFC vs LPF: Choosing the Right Hong Kong Fund Structure

Hong Kong's fund landscape changed significantly with the introduction of two bespoke onshore fund vehicles: the Open-Ended Fund Company (OFC), which came into force in July 2018, and the Limited Partnership Fund (LPF), introduced in August 2020. Together, they give fund managers a credible alternative to the offshore structures — principally Cayman Islands limited partnerships and companies — that have historically dominated the market.

Both vehicles benefit from Hong Kong's unified fund tax exemption and can be used for a wide range of alternative investment strategies. Yet they are structurally different, attract different investor bases, and suit different fund types. This article sets out the key characteristics of each and provides a framework for choosing between them.

The Open-Ended Fund Company (OFC)

An OFC is an investment company incorporated in Hong Kong under the Companies Ordinance (as amended). Unlike an ordinary Hong Kong company, an OFC has variable share capital — meaning shares can be issued and redeemed without the usual company law restrictions on capital reduction. This makes it well-suited to open-ended fund strategies where investors subscribe and redeem on a regular basis.

Key structural features of an OFC include:

• Legal personality. An OFC is a body corporate with full legal personality. It can sue and be sued in its own name, enter contracts, and hold assets directly.
• Sub-fund structure. An OFC may establish multiple sub-funds, each with segregated assets and liabilities. Creditors of one sub-fund cannot claim against the assets of another.
• Custodian requirement. All OFCs — public and private — must appoint a custodian approved for that purpose.
• Dual registration. An OFC must be registered with both the Companies Registry and the SFC. The SFC reviews the OFC's constitution, proposed investment manager, and custodian before granting registration.
• SFC-licensed investment manager. The investment manager of an OFC must hold an SFC Type 9 (asset management) licence, unless a specific exemption applies.

OFCs may be offered publicly (to retail investors, requiring SFC authorisation of the offering document) or privately (to professional investors only, under a simplified registration process).

The Limited Partnership Fund (LPF)

An LPF is a fund registered under the Limited Partnership Fund Ordinance (Cap. 637), which came into force on 31 August 2020. It is structured as a limited partnership with one or more general partners (GPs) and one or more limited partners (LPs). Registration is effected at the Companies Registry only — no SFC registration is required for the fund vehicle itself, though the investment manager typically requires an SFC licence separately.

Key structural features of an LPF include:

• No separate legal personality. Unlike a company, a limited partnership has no legal personality of its own. Assets must be held in the name of the GP or a duly appointed custodian.
• GP liability. The general partner bears unlimited liability for the obligations of the LPF. In practice, GPs are typically Hong Kong incorporated special purpose companies.
• Limited partner protection. LPs enjoy limited liability provided they do not take part in the management of the fund. The LPFO provides a non-exhaustive safe harbour of permitted LP activities that do not constitute management participation.
• Structural flexibility. The limited partnership agreement (LPA) governs economic and governance arrangements and can accommodate complex waterfall, clawback, co-investment, and advisory committee provisions typical in private equity and venture capital.
• Register privacy. The register of LPF limited partners is not publicly accessible, offering a degree of confidentiality unavailable with company-based structures.

Principal Differences

The two vehicles differ in the following key respects:

• Legal structure: OFC is a company with legal personality; LPF is a limited partnership without separate legal personality.
• Regulatory registration: OFC requires both Companies Registry and SFC registration; LPF requires only Companies Registry registration.
• Capital structure: OFC issues redeemable shares; LPF uses capital account contributions and distributions.
• Custodian: Mandatory for OFCs; not mandated by statute for LPFs, though commonly appointed in practice.
• Typical use cases: OFCs suit hedge funds, UCITS-equivalent structures, and open-ended strategies with regular subscription and redemption. LPFs are preferred for private equity, venture capital, real estate, and other closed-ended strategies.
• Investor register: OFC shareholder register is publicly accessible; LPF LP register is not.

Tax Treatment

Both OFCs and LPFs can benefit from Hong Kong's unified fund tax exemption, which exempts qualifying funds from profits tax on qualifying transactions in securities, futures, foreign exchange, and a range of alternative asset classes. The exemption was extended in 2019 and 2020 to cover all privately offered funds regardless of their legal form, removing an earlier asymmetry that had favoured offshore vehicles.

A carried interest tax concession introduced in 2021 allows eligible carried interest income received by qualifying employees and service providers of a qualifying fund to be subject to tax at a concessionary rate of 0% for salaries tax and profits tax purposes. This aligns Hong Kong's treatment of carried interest with leading fund domiciles and meaningfully enhances the economics of establishing fund management operations locally.

Which Structure to Choose

The decision between an OFC and an LPF turns primarily on investment strategy, investor base, and governance requirements:

• If you are raising from institutional investors, anticipate regular liquidity windows, or want optionality for future retail distribution, an OFC is typically the more appropriate vehicle.
• If you are running a private equity, venture capital, or real estate strategy with a defined investment period and capital call model — and particularly if your target LP base is familiar with the Cayman limited partnership structure — an LPF will almost always be the preferred choice.
• For family office and single-investor mandates where flexibility and simplicity are paramount, the LPF offers maximum structural freedom with minimal regulatory overhead.

Either structure can be established relatively quickly once the investment manager's SFC licence is in place. LPF registration at the Companies Registry can be completed in one to two weeks; OFC registration adds the SFC approval stage, typically a further two to three weeks for private OFCs.

Alan Wong LLP advises fund managers, sponsors, and institutional investors on all aspects of fund formation in Hong Kong, including OFC and LPF structuring, limited partnership agreement drafting, SFC licensing, and investor documentation. Contact us to discuss your fund structure requirements.