New tax exemption seen drawing hedge funds to Hong Kong

More hedge funds and private equity firms will set up in the city because of a government reform plan and the internationalisation of the yuan, industry representatives say.

Philip Tye, chairman of the Hong Kong branch of the Alternative Investment Management Association, a hedge-fund lobby group, said he expected more funds to domicile their products here because Financial Secretary John Tsang Chun-wah in February proposed to expand tax exemptions for private equity funds and to allow fund products to be structured more flexibly. Tsang made the proposal in his budget speech.

"The government reform plans, as well as the internationalisation of the yuan, are going to make Hong Kong more attractive to many hedge funds," Tye said.

"Hong Kong has always been an ideal distribution centre for fund managers to sell their fund products 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."

Of the roughly 1,700 funds in the city, about 300 are domiciled here. Most are domiciled in Luxemburg and Dublin, partly due to structural and tax issues.