Fund Structures in Hong Kong: LPF, OFC, and Unit Trust Compared

Hong Kong has invested significantly in its investment fund ecosystem over the past decade, introducing two new onshore fund structures, the Open-ended Fund Company (OFC) and the Limited Partnership Fund (LPF), to complement the established unit trust structure. These vehicles offer fund managers and investors a choice of onshore vehicles that are competitive with offshore alternatives (Cayman Islands, BVI) while benefiting from Hong Kong's tax regime, legal system, and fund ecosystem. This guide compares the three main structures and helps managers and investors determine which is best suited to their needs.

Overview: The Three Main Onshore Fund Structures

Unit Trust

The unit trust is the most established onshore fund vehicle in Hong Kong, with a history dating back decades. It is a contractual arrangement (governed by a trust deed) under which a trustee holds fund assets on behalf of unitholders. Unit trusts are widely used for both SFC-authorised retail funds and non-retail (professional investor) funds.

Open-ended Fund Company (OFC)

The OFC was introduced in 2018 and is governed by the Companies Ordinance (Cap. 622) and the Securities and Futures (Open-ended Fund Companies) Rules. It is a corporate structure specifically designed for collective investment schemes, combining a familiar corporate form with the flexibility of an open-ended fund. OFCs can be used for both SFC-authorised retail funds and privately placed professional investor funds.

Limited Partnership Fund (LPF)

The LPF was introduced in August 2020 under the Limited Partnership Fund Ordinance (Cap. 637). It is a limited partnership structure designed specifically for closed-ended investment funds, modelled closely on the Cayman Islands exempted limited partnership (ELP). The LPF is particularly suited to private equity, venture capital, and real estate funds where capital is drawn down over time and returned to investors via distributions rather than redemptions.

Key Feature Comparison

Legal Nature

Feature	Unit Trust	OFC	LPF
Legal form	Trust (contractual)	Company (corporate)	Limited partnership
Separate legal personality	No (held by trustee)	Yes	No (held by GP)
Open or closed ended	Either	Open-ended only	Closed-ended only
Redemption of interests	Yes (open-ended)	Yes	No (distributions only)

Parties and Governance

Feature	Unit Trust	OFC	LPF
Key parties	Trustee, manager, unitholders	Custodian, investment manager, directors, shareholders	General partner (GP), limited partners (LPs)
Independent governance	Trustee oversight	Board of directors (majority independent for retail funds)	No requirement; GP has full management control
Liability of investors	Limited to subscription amount	Limited to subscription amount	LPs: limited to capital commitment; GP: unlimited (mitigated by using a corporate GP)

Regulatory Requirements

Feature	Unit Trust	OFC	LPF
SFC authorisation required for retail?	Yes (SFC-authorised funds)	Yes (public OFCs)	Not applicable (closed-ended)
Registration / filing	No separate registration (governed by trust deed)	Registered with SFC and Companies Registry	Registered with Companies Registry
Investment manager requirement	SFC-licensed manager (for authorised funds)	SFC-licensed investment manager required	Registered investment manager required (SFC-licensed or registered under LPF Ordinance)
Annual audit	Yes (audited accounts required)	Yes	Yes

Tax Treatment

All three structures can qualify for Hong Kong profits tax exemption under the unified funds exemption regime (Sections 20AM–20AX of the Inland Revenue Ordinance), provided:

• The fund is a "collective investment scheme" or meets the relevant definition for LPFs/OFCs
• The specified qualifying transactions are carried on by or through a person carrying on a business in Hong Kong
• The fund is not a closely held fund (unless it satisfies the "private arrangement" or "family" exceptions)

In 2023, Hong Kong introduced a profits tax concession for carried interest paid by eligible LPFs and OFCs to qualifying recipients, taxed at an effective rate of 0% (100% deduction). This was a major step towards making Hong Kong competitive with Cayman for PE/VC fund formation.

Key tax considerations for each structure:

• Unit trust: Trust income taxed at trustee level (subject to exemption). Unitholders generally not directly taxed in Hong Kong on trust distributions
• OFC: Profits tax at entity level (subject to exemption). Dividends from OFC to shareholders not subject to Hong Kong withholding tax
• LPF: Transparent for tax purposes: income and gains allocated to partners. GP/LPs subject to profits tax on their share of fund profits (subject to exemption). Carried interest concession available

The Open-ended Fund Company (OFC) in Detail

The OFC is designed to replicate the functionality of the SICAV (Société d'Investissement à Capital Variable) structure familiar from Luxembourg and other European jurisdictions. Key features include:

• Variable capital: Shares can be issued and redeemed continuously as investors subscribe and redeem. No minimum capital requirement.
• Sub-funds: An OFC can have multiple sub-funds, each with segregated assets and liabilities (ring-fencing). Creditors of one sub-fund cannot have recourse to the assets of another sub-fund.
• Directors: The OFC must have at least two directors (one independent for private OFCs; majority independent for public/retail OFCs)
• Custodian: A custodian (bank or SFC-licensed entity) must hold and safekeep the OFC's assets
• Investment manager: An SFC-licensed investment manager must be appointed to manage the OFC's investments
• Re-domiciliation: An OFC can re-domicile from Cayman or other jurisdictions to Hong Kong (and vice versa), facilitating migration of existing funds

The Limited Partnership Fund (LPF) in Detail

The LPF is Hong Kong's answer to the Cayman ELP and is the preferred vehicle for closed-ended PE/VC funds. Key features include:

• General Partner (GP): The GP manages the fund and has unlimited liability (typically mitigated by using a limited liability company as GP). The GP must be registered in Hong Kong (or be a Hong Kong-registered non-Hong Kong company)
• Limited Partners (LPs): Investors whose liability is limited to their capital commitment, provided they do not participate in management
• Investment manager: The GP may delegate investment management to a registered investment manager (SFC-licensed or registered under the LPF Ordinance)
• Registered agent: The LPF must appoint a registered agent (similar to the Cayman concept) who must be a solicitor, accountant, or trust company registered in Hong Kong
• Confidentiality: LP names are not publicly disclosed in the Companies Registry filing, providing a degree of privacy for investors
• Anti-money laundering: The GP and investment manager must comply with AMLO AML/CFT obligations
• Continuation: An LPF established in a foreign jurisdiction can be re-domiciled to Hong Kong

Choosing the Right Structure

The choice of fund structure depends on the fund's strategy, investor base, and operational requirements:

• Open-ended liquid strategies (hedge funds, liquid alts, money market): OFC or unit trust. OFC is preferred for managers seeking a familiar corporate structure and the benefits of sub-fund ring-fencing. Unit trust is more established and familiar to Asian institutional investors.
• Private equity, venture capital, real estate, infrastructure: LPF. The closed-ended, capital call / distribution model of the LPF is purpose-built for these strategies. The carried interest concession makes it particularly attractive.
• Retail authorised funds: SFC-authorised unit trust or public OFC. Both can be sold to Hong Kong retail investors if SFC authorisation conditions are met.
• Single family offices and club deals: LPF is often used for private family investment vehicles due to its flexibility, LP confidentiality, and familiar PE fund architecture.

Comparison with Cayman Structures

For many years, the Cayman Islands exempted limited partnership (ELP) and Cayman exempted company dominated Hong Kong-managed fund structures due to their flexibility, tax neutrality, and investor familiarity. The introduction of the LPF and OFC (and the profits tax exemption and carried interest concession) has significantly narrowed the gap. Key remaining advantages of Cayman include:

• Deeper investor familiarity and longer track record for large institutional mandates
• Greater flexibility in partnership agreement terms
• No requirement for a Hong Kong-registered investment manager

However, the Hong Kong government's ongoing commitment to developing the fund ecosystem, including potential introduction of a closed-ended fund company structure, suggests that the gap will continue to narrow.

Update: the 2026 fund tax bill

The Inland Revenue (Amendment) (Preferential Tax Regimes for Funds, Family-owned Investment Holding Vehicles and Carried Interest) Bill 2026 was gazetted on 12 June 2026 and is before the Legislative Council. It has not yet been enacted, but it is expressed to take effect retrospectively from the year of assessment 2025/26, and the Inland Revenue Department has confirmed that eligible taxpayers may claim on that basis in their 2025/26 returns pending enactment. Anyone structuring a fund now should plan against the Bill rather than the current text.

The changes that matter most in practice:

• The statutory definition of "fund" is widened, and will capture certain funds-of-one that fall outside it today.
• The 5% incidental transaction threshold is removed, which has long been a trap for funds with modest ancillary income.
• Qualifying assets are expanded by ten new items: insurance-linked securities, equity interests in non-corporate entities, precious metals, specified commodities, loans and private credit, immovable property outside Hong Kong, digital assets, and emission allowances, emission derivatives and carbon credits. The caps are widely misreported. Precious metals are capped at 20% by value of the investment portfolio, commodities at 15% by trade volume, and digital assets are not capped at all. Emission allowances additionally depend on a platform recognition that has not yet been made.
• The special purpose entity rules are relaxed, so the exemption can apply regardless of the fund's ownership percentage in the SPE and regardless of a co-investor's tax status.
• For carried interest, the HKMA certification requirement and the hurdle rate requirement are both removed, and the concession is extended to employees with a contractual right to share in the carry.

The Government has said it has no plans to expand the concessions further, and clarified in August 2026 that proprietary trading businesses are not "funds" and cannot access the carried interest concession. The second reading debate is expected in the second half of 2026.

The Bill also tightens. New section 20AMA imposes an economic substance requirement on the fund itself, being at least two qualified Hong Kong employees and at least HK$2 million of Hong Kong operating expenditure. New sections 20AZ to 20AZE create a mandatory tax reporting mechanism backed by new criminal offences, and there is a specific anti-round-tripping rule aimed at loans. All of it applies retrospectively to the year of assessment 2025/26, so a manager with no Hong Kong headcount needs to look at this now.

We have published a detailed analysis of the Bill, covering both the relaxations and the new substance and reporting obligations that come with them: the 2026 Funds, FIHV and Carried Interest Bill.

Conclusion

Hong Kong's investment fund landscape has matured considerably with the introduction of the LPF and OFC, giving fund managers genuine onshore alternatives to Cayman. The choice between unit trust, OFC, and LPF depends on fund strategy, investor base, regulatory obligations, and tax considerations. Early legal structuring advice is essential to ensure the optimal vehicle is selected and properly established.

Alan Wong LLP advises fund managers and investors on the structuring, establishment, and ongoing compliance of Hong Kong investment funds across all three structures. Contact us to discuss your fund formation requirements.