LCQ9: Promoting development of private equity funds
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Question:
The Government stated in the 2024 Policy Address that it would facilitate the opening of new distribution channels for private equity (PE) funds through the Hong Kong Exchanges and Clearing Limited (HKEX); and the 2025-26 Budget further mentioned that in order to facilitate more PE funds to list in Hong Kong, the Securities and Futures Commission (SFC) had clarified the relevant regulatory requirements to encourage sizeable alternative asset funds with regular income streams to raise funds. In this connection, will the Government inform this Council:
(1) whether it will urge SFC and HKEX to work together on finalising the details of the relevant regulatory policies as soon as possible, such as establishing valuation standards, setting up a fast-track approval mechanism, etc., to facilitate the listing of more PE funds in the form of limited partnership funds in Hong Kong;
(2) whether, to attract more large overseas PE funds to list in Hong Kong, the Government will consider offering tax incentives and urge HKEX to reduce relevant listing fees;
(3) whether it will enhance collaboration with the Mandatory Provident Fund Schemes Authority (MPFA) to formulate guidelines for investing Mandatory Provident Fund (MPF) assets in listed PE funds and clearly assign risk ratings (e.g. low, medium or high risk) to such funds so that MPF trustees can invest in suitable PE funds in accordance with their investment policies in the future; and
(4) whether it will introduce measures in collaboration with SFC, HKEX and MPFA on investor education on PE funds, such as organising seminars and developing risk disclosure handbooks, to raise the awareness of listed PE funds among retail and institutional investors, thereby promoting the development of PE fund business?
Reply:
President,
In consultation with the Securities and Futures Commission (SFC) and its subsidiary, the Investor and Financial Education Council (IFEC), the Mandatory Provident Fund Schemes Authority (MPFA) and the Hong Kong Exchanges and Clearing Limited (HKEX), the reply to the various parts of the question is as follows.
(1) The Government is committed to promoting the development of the financial markets. "The Chief Executive's 2024 Policy Address" announced that the Government would attract more global capital to be managed in Hong Kong, including facilitating the opening of new distribution channels for private equity funds (PE funds) through the HKEX's listing.
In respect of authorising funds which seek a listing on the HKEX, the SFC issued a circular in February 2025 to clarify the regulatory requirements in relation to closed-ended funds that invest mainly in private and less liquid assets, thereby encouraging sizeable alternative asset funds (including PE funds, same hereinafter), preferably those with regular income streams, to list in Hong Kong. Relevant requirements have been included in the circular and the SFC's Code on Unit Trusts and Mutual Funds, including requirements on the management company's competence and experience, investments in a well-diversified portfolio of alternative assets, distribution policy, valuation and disclosure in offering documents. Due to a wide array of alternative assets available, the SFC may impose additional conditions, modify requirements, or allow flexibility in compliance with certain requirements, having regard to the fund's nature and investment strategy.
The SFC has been in ongoing engagement with the industry, and has been in discussions with interested fund managers on their preliminary proposals for listed alternative asset funds. According to the SFC's understanding, these funds are planned to be structured in corporate or unit trust form, primarily investing in private equity, private credit and infrastructure debt.
Based on the SFC's discussion with the industry, the SFC is of the view that, at the moment, it would be preferable for listed alternative asset funds to adopt existing public fund structures. These structures are familiar to and well understood by retail investors in Hong Kong, and there are comprehensive investor protection measures and regulatory requirements under the Code on Unit Trusts and Mutual Funds. The SFC will continue to explore the feasibility of the listing of alternative asset funds in limited partnership form.
(2) The Government is committed to providing a facilitative tax environment for the industry to attract more funds to set up and operate in Hong Kong. Under the prevailing tax regime, publicly offered funds are already exempt from profits tax. In addition, the Inland Revenue (Amendment) (Tax Concessions for Carried Interest) Ordinance 2021 has been effective from May 2021, providing tax concessions for carried interest distributed by eligible PE funds operating in Hong Kong. The Government will endeavour to introduce a bill into the Legislative Council in the first half of 2026 to further enhance the preferential tax regimes for funds, single-family offices and carried interest, including enhancing the tax concession arrangement on the distribution of carried interest by PE funds, so as to attract more PE funds to set up in Hong Kong.
Funds that are eligible to be authorised by the SFC and listed in Hong Kong under the Listing Rules should have sizeable asset under management and business operations, and they should have sufficient resources to cover the relevant costs of applying for listing. The listing fee collected by the HKEX only makes up a small proportion of the expenses associated with listing. The HKEX and the SFC will review the level of relevant fees under the HKEX from time to time so as to ensure their levels would be competitive as compared to other major markets.
(3) To enhance the risk-adjusted return potential of Mandatory Provident Fund (MPF) funds, the Government and the MPFA have been committed to reviewing and broadening the MPF permissible asset classes. Having considered the potential benefits of allowing MPF investment in private equity to enhance diversification and return potential, the MPFA announced to the industry in May 2025 that listed PE funds meeting the relevant criteria and approved by the MPFA on a case-by-case basis can be included as a permissible underlying asset class for MPF funds. In view of the higher risks associated with listed PE funds as compared with traditional investment options, the total amount that an MPF fund can invest in approved listed PE funds is limited to 10 per cent of the fund's net asset value to safeguard the interests of scheme members.
Investment managers of MPF funds should make professional decisions on whether to make relevant investment with due regard to the MPF fund's investment policy and objective. The MPFA currently has no plan to assign risk ratings to approved listed PE funds, but will closely monitor the situation and maintain dialogue with the industry. There are currently no listed PE funds included as permissible asset class for MPF funds. The MPFA will revise the relevant guidelines upon the approval of the first listed PE fund to facilitate investment decisions of investment managers.
(4) The Government has been supporting the SFC and its subsidiary, the IFEC, in carrying out investor education work through various means and channels. The SFC will work closely with the IFEC to issue general investor education materials to explain the investment opportunities and risks in respect of listed alternative asset funds, in order to help investors make informed investment decisions. For specific alternative asset fund products, as set out in the circular, the management company of an SFC-authorised listed alternative asset fund is expected to carry out extensive investor education before launching the fund in Hong Kong. The MPFA will also continue to promote MPF education through various activities and channels, with a view to enhancing scheme members' understanding of MPF investment options.
Ends/Wednesday, October 8, 2025
Issued at HKT 14:45
Issued at HKT 14:45
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