OFC – an alternative structure for SFC-authorized funds

On 24 February 2021, Hong Kong’s Finance Secretary Paul Chan delivered the 2021-22 Budget which highlighted upcoming government initiatives to promote the establishment of and re-domiciliation of offshore funds to Hong Kong using the Hong Kong open-ended fund company structure (OFC). A subsidy of up to HK$1 million per OFC will be provided by the Hong Kong Government to cover 70% of expenses paid to local professional service providers for the set-up of an OFC in or to re-domicile an offshore fund to Hong Kong within the coming three years (the Subsidy Scheme). This development is a further step towards the growth of Hong Kong as an international asset and wealth management centre and a predominant investment fund domicile.

The OFC structure was launched in 2018. There was initially little enthusiasm from the industry to set up SFC-authorized OFCs. However, following the implementation of the Subsidy Scheme, as an alternative to establishing new sub-funds under existing unit trust umbrellas, managers may now consider setting up new funds under new OFC platforms to benefit from the substantial reduction in the set-up costs. Going forward, the OFC structure could potentially become a more attractive and popular option for managers when establishing new investment funds.

The SFC is currently working on the implementation of the Subsidy Scheme, and is expected to announce further details of the administration of the Subsidy Scheme soon after the 2021-22 Budget is passed by the Legislative Council possibly in May or June 2021. There remain various uncertainties as to how the Subsidy Scheme will be administered by the SFC, e.g. whether the Subsidy Scheme will only be available for the initial set-up of the OFC platform and the initial sub-fund; whether the Subsidy Scheme will be available retrospectively for OFCs that have already been established; the scope of “professional services” that are eligible for the Subsidy Scheme; whether there is a limit on the number of times each manager can claim the Subsidy Scheme; whether there is an overall budget for the Subsidy Scheme; at what point in time may the manager submit an application to the SFC for the Subsidy Scheme; whether the costs incurred prior to the application would be eligible, etc. Managers certainly are advised to bear the above issues in mind and start planning early if they intend to adopt an OFC structure for their upcoming new investment funds.