hong kong: asia’s premier private equity hub...general partner individual, body corporate or...
TRANSCRIPT
Hong Kong:
Asia’s premier
private equity hub
18 May 2020
Hong Kong is the largest PE hub in APAC after Mainland China.
2Note: Capital-under-management is the total fund amount currently managed by the PE firm either deployed or available to invest
Source: AVCJ
0
100
200
300
400
500
600
700
China Hong Kong South Korea India Japan Australia Singapore
Capital-under-management of PE funds 2019
USD bn
160
3Note: The figures above cover private equity or venture capital firm with an office located in Hong Kong.
Source: AVCJ
412 435 459 529
565
-
100
200
300
400
500
600
2015 2016 2017 2018 2019
Total number of PE & VC firms in HK
Steady growth in number of PE firms in Hong Kong
China - the largest contributor to high-growth APAC PE
investment market
4
Sources: Asia-pacific Private Equity Report 2019 by Bain & Company, AVCJ
China (including
Hong Kong)39%
South Korea12%
Australia6%
Japan7%
Others3%
South East Asia
9%
India24%
Total APAC PE Investments (2019)
Note: Excludes real estate and infrastructure
APAC PE investment market
Hong Kong - springboard to capture Mainland China opportunities
5
Tax
Unparalleled benefits under
Mainland-HK DTA
Tax treatment for HK citizens
working in GBA
LocationMost convenient access to
Mainland China
CultureFamiliar business culture
Duo official language
Policy
support
Central government supports
engaging HK PE funds to
finance GBA innovation & tech.
enterprises
Hong Kong
Greater Bay Area (GBA) Initiative creates an integrated financial
and innovation zone around Hong Kong
6
GBA being the largest bay area in the world has
huge growth potential
Hong Kong will benefit from the development of
GBA.
Source: Fung Business Intelligence, China Council for the Promotion of International Trade, Constitutional and Mainland Affairs Bureau
San
Francisco
Bay Area
New
York
City
GBA
Greater
Tokyo
Area
GDP
(USD trn)0.8 1.7 1.5 1.8
Area
(sq.km)17,900 783 56,000 36,800
Population
(mn)7.6 8.6 70.0 43.8
• Strengthen Hong Kong's status as a global
offshore RMB business hub
• Population, trade and capital flows create
opportunities for payment, banking and
wealth management services
• Enjoy mutual financial market access in the
GBA
Hong Kong at the center of Asia’s burgeoning PE market
Hong Kong Shenzhen
International
Financial Center
China’s
“Silicon Valley”
The World’s
Factory
Guangdong
Province
Hong Kong - platform for inflow & outflow of China investment
7
Source: China’s Ministry of Commerce
China's FDI & ODI
61% 63% 65% 67%
China FDI China ODI HK's share of total
63% 66%
112 118 120 126 126 131
88108
123146
196158
0
50
100
150
200
250
300
350
2012 2013 2014 2015 2016 2017
USD bn
Hong Kong consistently originates and intermediates >60% of China’s inward foreign
direct investment (FDI) and outward direct investment (ODI)
Hong Kong - robust financial markets
8
Notes: 1. as of 31 Dec 2019, 2. as of 31 Dec 2018
Source: HKMA, HKEX, ADB, SFC, CBRC, FDIC, EBA, MAS, BOJ, IMF, SNB, BIS, Financial Supervisory Service of Korea
USD
3,059bn
• 194 authorized institutions,
including 78 of the world top 100
Global #1 in IPO
fundraising in 6 out of last
10 years
#3 in Asia ex-Japan, after
Mainland China & Korea
More than 1,600 licensed
fund managers
USD
4,893bn
USD
560bn
USD
3,136bn Banking
Stock
Market
Bond
Market
Asset & Wealth
Management
Assets1
Market Capitalisation1
G3 and local currency bond
issuance1
Asset under management2
Hong Kong - destination for business substance
9
Wide selection of service providers Ranked #2 on talent in Asia
Source: IMD World Talent Ranking 2019, Hong Kong Institute of Certified Public Accountants , Census and Statistics Department, The Law
Society of Hong Kong, HKTDC, InvestHK, SFC, QS World University Rankings 2020, Financial Times EMBA Ranking 2019, Department of
Justice, Investment & Pensions Europe, HKMA
Banking
Fund
management
• 78 of the world’s top 100 banks
present
• All top 20, & 70 of the top 100
glglobal money managers present
• >42,000 staff in AWM business
Legal
• >50% global 100 law firms present
• >10,000 practicing solicitors &
barristers (incl. registered foreign
lawyers from 33 jurisdictions)
Accounting • >45,000 CPAs
Universities
Academy of
Finance
• 3 universities in world’s top 50
2 universities in Asia’s top 10
• 2 EMBA programmes in world’s
top 5
• Professional training, cross-
sector expertise sharing and
collaboration in applied
research
Enhanced
Competency
Framework
• Develops banking talents
Hong Kong - Presence of leading asset owners and PE managers
10
Source: PEI, Thinking Ahead Institute’s Asset Owner 100 report, AI300 Survey, Google
15 out of 20 top PE firms (by PEI) present in HK
1 Blackstone
2 The Carlyle Group
3 KKR
4 CVC Capital Partners
5 Warburg Pincus
6 Bain Capital
7 EQT
9 Apollo Global Management
10 Neuberger Berman Group
12 TPG
15 Apax Partners
16 General Atlantic
18 Permira Advisers
19 Advent International
20 Silver Lake
Examples of large asset owners in HK
China Investment Corporation
Abu Dhabi Investment Authority
All Pensions Group (apg)
Hong Kong Monetary Authority
Canada Pension Plan Investment Board
Ontario Teachers’ Pension Plan
Nuveen
The Church Pension Fund
……. and the list goes on
1,031
1,135
1,348
1,477
2014
2015
2016
2017
2018
# licensed asset managers
0.2
0.6
1.3
2.2
3.1
2000
2005
2010
2015
2018
AUM USD trn
450
14190 67
41 6636 1
18.9
63.2
5.6 9.929.6
17.6
0
100
200
300
400
500
AUM of alternative funds (2017)
Private equity* Hedge Fund AUM
Hong Kong - international asset management hub
11
Source: SFC, AVCJ, Preqin
Continuous growth in conventional and alternative asset management.
+15.5x
+1.6x
Asia’s largest hedge fund
hub and second largest PE
centre after China
1,643
USD bn
* By capital under management
HK’s new PE platform
12
Fund level tax exemption
New limited partnership law
Carried interest tax treatment
Offshore model
13
Sub Manager
(HK company)
Carried Interest
Vehicle
(Non-HK)
General Partner
(Non-HK)
Feeder Fund
(Non-HK)
Local Sub-Advisor
(Investment
jurisdictions)
Investment
Manager
(Non-HK
company)
ParticipantsNon-US &
US tax exempt investorsUS taxable
investors
Fund
(Non-HK limited
partnership)
SPVs
Investments
• Occasional travel
outside HK
• High set up &
maintenance cost
• Intensifying burden
on audit, valuation,
substance
• Tax & regulatory risks
Limited Partnership Fund (“LPF”) regime
Business-
friendlySimple
registration
$1BLorem ipsum dolor
sit amet, consectetur
adipiscing elit.
No need for-
authorization
at fund level
As good
as other
fund
hubs
14
Timetable
15
2020
March 2020
LPF Bill glazed
31 August 2020
Target effective date
Hong Kong’s new solution for the industry
LPF(HK)
GP(HK / offshore)
IM(HK / offshore)
Global Investors
SPVs
Assets
Participants List of potential users
• VC, PE & buy-out funds
• RE funds
• Infrastructure and projects funds
• Special situations / hybrid funds
• Credit funds
• Funds that invest in digital assets,
such as cryptocurrency & virtual
assets
• Funds that invest in public equity &
other liquid assets (e.g. hedge
funds and long only funds)
16
Key features (1)
17
Governing Law LPF Ordinance
(Bill to be introduced into LegCo)
Registration • With CR, through lawyer
• Hong Kong Registered Office
• Fixed registration fee
Capital Duty on
contributions from LPs
Nil
Information made publicly
available
Details of the fund, GP, IM & presenter of
the application, but not the investors
Statutorily prescribed safe
harbour activities for LPs
Very broad
Fund legal personality No separate legal personality
Key features (2)
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General Partner Individual, body corporate or limited
partnership
Custody, Administration
and audit requirements
• “Proper custody arrangements”
• Requirement to appoint an independent
auditor to audit financial statements of the
fund on an annual basis
• No prescribed administration
requirements except for AML obligations
• If the fund is managed by a HK licensed
fund manager, certain custody, audit and
appointment of counterparty requirements
apply
Key features (3)
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LPs’ transfer of interest in
a limited partnership fund
• Subject to the LPA terms
Statutorily prescribed
voluntary winding up
process
1. GP files a notification of dissolution with
CR within 15 days after the fund is
dissolved
1. Unless court orders otherwise, GP to
dispose of assets, settle liabilities and
distribute proceeds in accordance with
LPA
Key features (4)
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Extent of Freedom of
Contract
On key operation of the LPF as determined
by the LPA, including -
• the admission & withdrawal; rights &
obligations of partners;
• investment scope;
• financial arrangement (capital
contribution, capital withdrawal,
distribution of proceeds, clawback
obligations etc.) provided the fund is
solvent
How to get started?
21
One GP and at least one LP
LPA that complies with the Ordinance
Fund is established for a lawful purpose
Compliance with naming conventions of the Ordinance
Registered office in Hong Kong
Thank you & stay in touch!
22
Anson Law
Hong Kong Monetary Authority
Market Development Division