Everyone benefits. That’s my view of the talent race between Hong Kong and Singapore. The competition for investment professionals could strengthen the wider Asian funds industry, creating opportunities for plenty of people who will never receive a tax concession. More talent on the ground can lead to more fund launches and more business for the lawyers, administrators, directors and others supporting them.
For me, that is the opportunity: a larger regional industry, with room for both local and offshore structures.
As a Hong Kong lawyer who also provides independent director services, I see that opportunity across different structures. I’ve recently been involved in pitches for a Hong Kong open-ended fund company (OFC), a Cayman segregated portfolio company (SPC) using a manager licensed in Hong Kong and a traditional Cayman hedge fund. Conversations with others also point to continuing demand for Cayman and BVI structures. Those conversations reinforce my view that growth in Asian fund management can benefit both local and offshore structures.
From attracting people to creating businesses
Hong Kong proposes widening its carried-interest concession beyond private equity profits, alongside broader changes to its fund tax regime. Singapore has announced proposed tax relief for qualifying shares of fund profits earned through fund-management services, together with measures to support hedge-fund managers and attract senior talent. These are both targeted actions to make it more attractive for investment professionals to build their businesses in Hong Kong and Singapore.
Tax may influence an individual’s decision to move, but the wider implications are what interest me. A larger local team needs operations, risk and compliance expertise. Someone coming in as an analyst may become a portfolio manager a few years later. An established firm may give its Asian team the resources to launch another strategy, while a prospective founder may find the colleagues and service providers needed to make a launch feasible.
New managers still need capital. Access to experienced people and specialist support can make the difference between an idea that remains a conversation and a fund that reaches launch. Those funds may invest globally and raise money internationally while being managed from Hong Kong or Singapore.
This is where I see the regional opportunity. Attracting additional talent, developing local professionals and making it easier to establish new businesses could produce a much more lasting benefit.
More funds, more than one route
That growth can support a range of fund structures. Hong Kong’s limited partnership funds and open-ended fund companies, Singapore’s variable capital companies, and Cayman and BVI vehicles all have their part to play. No single structure suits every fund. Managers need to consider the strategy, investor expectations, tax and regulatory position, costs and practical requirements of operating the fund.
Cayman remains an important choice for international alternative funds, and I would expect it to feature in many new launches from Asia. There is also room for local vehicles to develop and for BVI structures to serve managers whose needs they suit. Some platforms will use local and offshore vehicles alongside one another. The main question for a manager is which arrangement fits the business and its investors.
The economic benefit reaches beyond the fund’s place of incorporation. A Hong Kong manager using a Cayman fund will still need Hong Kong legal advice, banking relationships, operational staff and governance support. A locally domiciled vehicle draws on many of the same capabilities. As more funds launch, the resulting work helps sustain the specialist firms and experienced people who make the next launch easier.
Independent oversight from the outset
For me, this opportunity also brings a clear governance priority. For funds with a board, I believe having someone independent of the investment manager at the table is very important, even where an independent director is not mandatory. That person should be able to challenge a proposal while understanding the commercial pressures behind it. This matters, for example, when a valuation affects the manager’s performance fee.
Doing that well requires knowledge of the strategy, reliable information and the willingness to exercise judgment. It also requires a constructive relationship with the manager and advisers, so concerns can be addressed while there is still time to resolve them. An independent appointment has value when the person can participate meaningfully in those decisions. For partnership structures, the same oversight belongs within the relevant governing arrangements.
Hong Kong and Singapore’s tax competition could help create more of the teams and businesses from which new funds emerge. I see that as an opportunity for the whole region, with local and offshore structures both playing an important part. Its lasting value will depend on how well those businesses are established and run, including the quality of the independent judgment around the table.