Orrick has advised Pacific Hawk (HK) Ltd., a Hong Kong-based fund manager, on the establishment of the first open-ended fund company (OFC) in Hong Kong. This development, which will substantially strengthen Hong Kong’s role as an international asset and fund management center, as well as a fund domicile hub, follows the passing of legislation last year and subsequent changes to Hong Kong’s tax code in April.
This first-to-market open-ended fund is a private fund available to professional investors that will ultimately prepare the ground for others to enter the market and offer public funds, in view of the regulatory approval process and strong support from professional advisors and regulators.
“This is a really positive step for the local economy. Open-ended funds fill a big gap in the range of investment options in Hong Kong and will create new opportunities for fund management professionals, independent directors and for other legal and professional services,” says Ann Cooley, Chief Executive Officer of Pacific Hawk. “If private OFCs can gain authorization to distribute their funds in China, they will be an enormous boost to Hong Kong’s role as Asia’s leading financial center.”
One of the main drivers for the establishment of OFCs in Hong Kong was a document last November from the Organization for Economic Cooperation and Development (OECD) on “substantial activity requirements.” This has led the Cayman Islands and other jurisdictions to enact legislation requiring certain entities to pass a test of “economic substance” or “relevant activity” in their territory.
“More and more funds are tending to domicile where their substantial activity exists,” noted Orrick’s Scott Peterman. “There are clear advantages in having fund managers, auditors, lawyers and other professionals all operating in the same location. This should result in more cost-effective funds.”
“We expect more fund managers to set up in this space, offering open-ended funds designed for the general investor,” added Ms. Cooley. “While these are sure to include many of the big international names, we also hope to see some local ‘home grown’ entities get involved.”
The Orrick team advising Pacific Hawk was led by Scott and included
Grady Bolding, Anson Chan, Karen Lam and
Rebecca Kellner.