Philip Tye, Chairman of the Hong Kong branch of the Alternative Investment Management Association a hedge fund lobby group praised Financial Secretary John Tsang Chun-wah proposal to revamp the industry laws.
In a media interview, Tye said he expected more fund managers to choose HK as a domicile for their products thanks to planned increased flexibility for fund product structures and widening the scope of tax exemptions for private equity funds.
"The government reform plans, as well as the internationalization of the yuan, are going to make Hong Kong more attractive to many hedge funds," Tye said. Adding that the city has long been an attractive distribution centre for private equity and fund managers seeking to gain access to Asian investors.
"The proposed reform plans would now make Hong Kong more attractive for fund companies to domicile their funds here. This will create job opportunities and benefit the hedge fund industry as a whole."
A law amendment introduced in 2006 offered a tax exemption to offshore funds on the condition they only invested in stocks and futures. According to the new scheme, tax exemptions would be extended to cover offshore private equity funds that directly invest in companies as well.
Tsang proposal, which he made during his budget speech, also includes a structural change to funds domiciled in HK. These funds, currently limited trust structures, could be established as companies under the new reform plans.
The HK government is also in talks with Mainland authorities on a possible mutual recognition agreement that would mainly pave the way for cross-border selling of fund products between the two sides. If discussions do lead to an agreement, that would grant HK-based funds a notable advantage.
John Levack, vice-chairman of the Hong Kong Venture Capital and Private Equity Association, also expressed his backing to the plans saying "Hong Kong is an excellent centre for private equity operations but without structural reforms, growth will be limited. /p>
"The opportunity, however, is to act as the offshore centre for China funds and to be the Asian regional hub for those multinational private equity firms who are not yet present in Asia," Levack added.
He estimates the move to double the number of private equity firms domiciled in HK creating many jobs across the financial sector, especially for fund managers and related professions.
The importance of structural and tax incentives in the industry is made clear by the fact that less than 20 percent of funds operating in HK are actually domiciled there (300 out of 1,700). Most of them are based in Luxembourg and Dublin, who up till now have provided a much more incentivised environment compared to HK.
