Comparison of Hong Kong OFC and Cayman SPC

Note: The following focuses mainly on a comparison between the umbrella-type Hong Kong Private OFC (Open-ended Fund Company) and the Cayman SPC (Segregated Portfolio Company) fund. For reference only.

1. Regulatory Framework and Authorities

• Hong Kong OFC: Primarily regulated by the Securities and Futures Commission (SFC) and governed by:

• the Securities and Futures Ordinance (SFO) and its subsidiary legislation (OFC Rules, OFC Code).

• For company registration, the SFC coordinates with the Hong Kong Companies Registry (CR) to provide a “one-stop” application.

• Cayman SPC Fund: Primarily regulated by the Cayman Islands Monetary Authority (CIMA), registered with the Cayman Companies Registry, and governed by:

• the Companies Act (Cayman),

• the Mutual Funds Act (for open-ended funds),

• the Private Funds Act (for closed-ended funds).

2. Legal Nature and Compliance Requirements

2.1 Legal Personality

Both Hong Kong OFCs and Cayman SPC funds are independent legal entities. Their underlying sub-funds/portfolios do not have separate legal personality.

2.2 Structure

Both can adopt an umbrella structure, allowing multiple sub-funds/portfolios to be established under a single legal entity.

2.3 Asset Segregation

Under the laws of their respective jurisdictions, assets and liabilities are ring-fenced: between sub-funds/portfolios, and between each sub-fund/portfolio and the main entity. In Tjin Joen Joe, Andy Tsjoe Kong and another v Oakwise Value Fund SPC [2025] HKCFI 1281, the Hong Kong Court confirmed the validity of SPC asset segregation, in a landmark ruling that provides great certainty to cross-border managers.

2.4 Investment Manager

• Hong Kong OFC:

• Must appoint an investment manager licensed/registered for Type 9 (Asset Management) activity with the SFC and continuously meet the “fit and proper”requirements.

• Appointment or subsequent changes require SFC approval.

• Cayman SPC:

• No specific requirement to appoint an investment manager.

• The manager must only meet the regulatory requirements of its own jurisdiction (e.g., licensing where applicable).

• Therefore, a manager need not consider the Hong Kong OFC structure if it is not seeking to be licensed or registered for Type 9 (Asset Management) regulated activity. Conversely,  if the manager is licensed or registered in Hong Kong, it will be subject to SFC regulation.

2.5 Directors

• Hong Kong OFC:

• Minimum two individual directors (at least one independent of the custodian).

• Directors must be SFC-approved and suitably qualified.

• Corporate directors are not allowed.

• Non-resident directors must appoint a process agent in Hong Kong.

• SFC rules impose fiduciary and due-diligence duties.

• Cayman SPC:

• Directors must be registered with CIMA, but no approval, qualification, experience, or independence requirements apply.

• Corporate directors are permitted.

2.6 Custodian

• Hong Kong OFC:

• Must appoint an SFC-approved custodian.

• Eligible custodians (as of Oct 2024) include: licensed banks, registered trust companies, prudentially supervised overseas banks, or SFC-accepted foreign custodians.

• For private OFCs, licensed or registered intermediaries conducting Type 1 (dealing in securities) may also qualify if additional conditions are met (e.g., HK10millionpaid−upcapital,HK3  million liquid capital, no license condition prohibiting client asset custody, and independence from the investment manager)

• Custodians bear a higher statutory duty of care for the safekeeping of assets.

• Cayman SPC:

• No statutory requirement,  though a custodian is often appointed contractually.

• Duties are typically contractual rather than statutory.

2.7 Auditor

• Hong Kong OFC:

• Must appoint an independent auditor to audit annual financial statements.

• The Instrument of Incorporation must set out procedures and requirements for auditor appointment/removal.

• Annual reports must include the auditor’s opinion confirming compliance with the Instrument, accounting standards, regulatory requirements, and the OFC Code.

• Cayman SPC:

• Both open-ended and closed-ended funds regulated by CIMA must engage a CIMA-approved auditor.

• Each sub-fund usually files its own audited financial statements annually.

2.8 Administrator

• Hong Kong OFC: Valuation and pricing fall      under the investment manager’s responsibility (OFC Code). No mandatory      administrator, but industry practice favors appointing a professional third-party administrator.

• Cayman SPC: No legal requirement, but administrators are typically appointed (especially for open-ended portfolios) to handle NAV calculation, investor registry, financial reporting, and KYC/AML/FATCA/CRS support. The board remains ultimately responsible for valuation accuracy.

2.9 Company Secretary

• Hong Kong OFC: Not mandatory but may be appointed.

• Cayman SPC: No statutory “company secretary” requirement, but a registered agent and mandated registered      office are required in Cayman.

2.10 Fundraising & Investor Requirements

• Hong Kong OFC:

• Professional Investor (PI) Exemption: If       offerings target only PIs (e.g., individuals with >HK8mportfoliosorcorporationswith>HK40m       assets), a prospectus is not required and no minimum subscription applies.

• Non-PI: If not relying on the PI exemption, the typical private placement safe harbor is fewer than 50       investors and a minimum subscription of HK$500,000 per investor.

• Cayman SPC:

• Open-ended funds: Usually require at least US$100,000       per investor to register under the Mutual Funds Act.

• Closed-ended funds: No statutory minimum, though       US$100,000 is common practice.

2.11 Investment Scope

• Hong Kong OFC: Since the Sept 2020 amendment,      private OFCs may invest in any asset class (subject to offering      document limits) but cannot operate for general commercial or industrial      purposes. Licensed managers must notify or obtain additional SFC approval      if the fund invests over 10% of assets in virtual assets.

• Cayman SPC: No restrictions on      investment strategy or leverage.

2.12 Tax Treatment

• Hong Kong OFC:

• Profits Tax Exemption (Unified Fund Exemption, UFE): Qualifying private funds (including OFCs) may enjoy profits-tax exemption on qualifying and incidental transactions if they meet conditions under the IRO/Schedule 16C and IRD guidance (DIPN 61) (e.g., carried out or arranged by a “specified person” in Hong Kong).

• Incidental transactions are generally capped at 5% of total profits unless specific conditions apply (e.g., where the OFC deals with “assets of a class that is not specified” as detailed in DIPN 61).

• Cayman SPC:

• If the Cayman fund's central management and control are found in Hong Kong or if it conducts transactions that fall within the Hong Kong tax nexus, Hong Kong profits tax may still apply unless UFE conditions are met.

• Cayman share transfers typically avoid Hong Kong stamp duty if executed and registered outside Hong Kong.

2.13 Ongoing Compliance & Reporting

• Hong Kong OFC: SFC prior approval is required for major changes (e.g., name change, director/custodian/manager appointment/removal, sub-fund establishment/termination, deregistration). Annual audited financial statements must be filed within 4 months of financial year-end.

• Cayman SPC: Generally registration-based rather than approval-based. Annual audited financial statements must be filed with CIMA within 6 months of financial year-end.

2.14 Termination

• Hong Kong OFC: Even a solvent OFC requires SFC approval to terminate. SFC may also order termination in cases of regulatory breach.

• Cayman SPC: CIMA does not conduct an      equivalent approval process.

2.15 Confidentiality

• Hong Kong OFC: The Companies Registry makes director and key officer details publicly searchable.

• Cayman SPC: Only limited basic company information is publicly available (name, number, date of registration/status), offering greater confidentiality.

2.16 Re-domiciliation

• Hong Kong OFC: Since Nov 2021, overseas corporate funds (including Cayman SPCs) may re-domicile to Hong Kong as an OFC without ceasing operations, preserving track record.

• Cayman SPC: Re-domiciliation to other jurisdictions is also permitted.

3. Set-Up and Operating Cost Comparison

3.2 Government Subsidy

• Hong Kong OFC: The OFC Grant Scheme (extended to May 2027) subsidizes 70% of eligible expenses, up to HK$150,000 for a private OFC. (No equivalent subsidy for Cayman).

3.3 Service Provider Costs

4. Investor Recognition & Service Provider Ecosystem

Registration Numbers & AUM

Service Provider Ecosystem

• Cayman: Highly mature; global fund administrators (Citco, SS&C, Apex), top law firms (Maples, Walkers), and Big Four auditors have deep, standardized expertise.

• Hong Kong: Ecosystem expanding; international administrators are building OFC teams but with smaller scale and higher customization needs.

Summary

The Cayman SPC remains the global standard for offshore hedge and private funds, offering deep service provider support, high investor familiarity, and broad fundraising reach.

The Hong Kong Private OFC provides growing tax incentives, government subsidies, and geographic advantages for Greater China investors, but carries higher regulatory oversight and is still developing international recognition.