Promoting the Hong Kong Open-ended Fund Companies (OFC)

September 2021


In 2018, the Hong Kong government officially introduced the Open-ended Fund Company (“OFC”) structure, which provides an alternative to the traditional offshore open-ended structures and the unit trust structure used in the Hong Kong fund market. By its design, the OFC structure is more suitable to the operation of open-ended funds and has brought greater flexibility to fund managers.

In order to further enhance Hong Kong’s status as an international asset and wealth management centre, the Securities and Futures Commission (“SFC”) has launched a grant scheme in May 2021 (the “Grant Scheme”) to subsidize setting up OFCs in Hong Kong and encourage offshore investment funds to re-domicile to Hong Kong and register as OFCs.

This article briefly introduces the background, operation and policy support of OFC, and summarizes some of the advantages of OFCs as compared to traditional fund structures.

Diversifying Hong Kong's fund market

In order to bolster Hong Kong as a full-service asset management hub, the Hong Kong government and the SFC formally introduced the OFC structure in 2018 following consultation and preparatory work since 2014. Having taken into consideration the feedback from the fund industry, the SFC published its consultation conclusions on proposed enhancements to the OFC regime in September 2020, which, amongst other things, introduced new features to improve the OFC regime.

The OFC is a new type of investment fund structure in the form of a limited liability company with variable share capital. Investors may invest in the fund by subscribing the OFC’s shares, which are fully transferable and redeemable. The OFC regime together with the limited partnership fund launched on 31 August 2020 have diversified the choices for fund structures in Hong Kong.

Prior to the launch of the OFC in Hong Kong, investment funds prefer establishing the fund in an offshore jurisdiction (such as the Cayman Islands), and appoint an investment manager in Hong Kong to indirectly manage the fund. The preference for offshore jurisdiction is primarily due to the diverse choices of fund structures and relatively simple tax regime available there.

How does an OFC work?

OFC can be either private or public depending on whether its shares are being offered to the public. The procedures for setting up a private OFC are relatively simple, and the offering documents need not be approved by the SFC. On the other hand, the incorporation and offering documents of a public OFC must be approved by the SFC, and it must also comply with the Code on Unit Trusts and Mutual Funds.

Regarding the internal management of the fund, the board of directors is responsible for the daily operation of OFC. The board of directors of an OFC must have at least two individual directors, at least one of whom is an independent director. The board of directors must appoint a qualified investment manager to carry out the fund’s investment management functions. In addition, an OFC's assets must be entrusted to a custodian for safekeeping.

Advantages of establishing OFC

Since the OFC structure is not subject to the restrictions on reduction and distribution out of share capital in the Companies Ordinance (Chapter 622 of the Laws of Hong Kong), an OFC has the flexibility to reduce its share capital to meet its investors’ needs for redemption.

The OFC structure also gives fund managers an option to operate funds in the form of limited companies with greater flexibility. Despite being an "open-ended" fund, an OFC is not prohibited from imposing restrictions on share redemption. By inserting properly drafted clauses in its instrument of incorporation and offering document, an OFC can impose restrictions the subscription, cancellation, and redemption mechanisms of shares depending on the OFC’s intended investors and investment products. It may even be possible to operate a “closed-end fund” using an OFC structure.

For a comparison between the Hong Kong OFC and traditional offshore funds (for instance, the Cayman Segregated Portfolio Companies (“SPC")), please see the table below.

Hong Kong OFC
Cayman SPC
Time required for establishment

Provided that the registration requirements are met, the processing time for private OFC applications is generally one to two months after submission of application to the SFC.

For public OFC, the processing time is the same as that for other SFC-authorized funds, depending on its complexity, ranging between one and three months after submission of application to the SFC.

A Cayman exempt company can usually be established or converted into an SPC within one month after submitting the relevant documents to the Registrar of Companies in the Cayman Islands.
Annual maintenance costs
Private OFCs do not need to pay annual fees to the Hong Kong government. Public OFCs, being SFC-authorised funds, are required to pay an annual fee to the SFC. As an OFC only involves a single jurisdiction, it can avoid additional offshore service expenses when compared with setting up an offshore structure, hence saving time and cost.
A Cayman SPC needs to pay annual fee to the Cayman government. Additional service agencies (such as Cayman auditors) need to be appointed in the Cayman Islands, and the SPC's accounts may need to be audited annually by Cayman auditors. For tax saving purposes, Cayman SPCs generally need to establish a board of directors and appoint directors in the Cayman Islands.
Only regulated by the SFC.
Cayman SPCs that engage in SFC-regulated activities in Hong Kong are regulated by both the Cayman Islands Monetary Authority and the SFC.
Tax incentives
Subject to certain criteria, profits from OFCs are not taxable under Hong Kong laws.
Profits from SPC are tax exempt under the laws of the Cayman Islands.
Segregation of assets and liabilities
The assets and liabilities of each sub-fund of an OFC (if any) are segregated from each other.
A Cayman SPC can set up a segregated portfolio (“SP”). The assets and liabilities of the SPC are segregated from that of its SP, and the assets and liabilities of each SP are also segregated from each other.

Policy Support

Under the Grant Scheme launched in May 2021, the SFC provides a 70% subsidy for eligible expenses incurred in relation to the incorporation or re-domiciliation of an OFC, subject to a cap of HK$1 million. The Grant Scheme accepts applications from 10 May 2021 until 9 May 2024. Each investment manager can only apply for funding for up to three OFCs.


In addition to traditional offshore funds and unit trust funds, the launch of OFC has brought a welcomed alternative to the Hong Kong investment fund market. The establishment and management of OFC in Hong Kong only involves a single jurisdiction, and its easy-to-manage characteristics and tax advantages make it an important part of the Hong Kong fund market. With the further integration of Hong Kong into the Guangdong- Hong Kong-Macau Greater Bay Area, the development of the Hong Kong investment fund market no doubt provides Mainland investors with more options.