The Hong Kong government’s upcoming launch of the new Capital Investment Entrant Scheme (CIES) in mid-2024 represents a strategic initiative designed to attract high net worth investors and diversify the city’s investment landscape. This client alert outlines the CIES’ requirements and how it could benefit investors and fund managers.
Expanded Opportunities for Private Funds
The scheme’s recognition of (i) open-ended fund companies registered under the Securities and Futures Ordinance (Cap. 571) (OFCs) and managed by corporations licensed by, or institutions registered with, the SFC for Type 9 regulated activity and (ii) ownership interest in limited partnership funds (LPFs) registered under the Limited Partnership Fund Ordinance (Cap. 637) as permissible investment assets[1] provides an attractive proposition for fund managers. These structures are instrumental in managing investments in public securities, private equity, venture capital, and other alternative investment arrangements.
For the time being, the CIES framework appears to allow for the creation of OFCs and LPFs as feeder funds or alternative investment vehicles, which could allow fund managers to channel investments into their existing investment structures, enhancing the appeal of their fund products to a broader investor base.
CIES Requirements Summary
To ensure that potential applicants and fund managers are well informed, the following is a succinct overview of the CIES requirements:
- Eligible Applicants: Individuals aged 18 or above, including foreign nationals, Chinese nationals who are permanent residents in a foreign country, and Chinese residents of Taiwan or Macao SAR.
- Net Asset Requirement: Applicants must demonstrate a net asset value of not less than HK$30 million throughout the two years preceding the application.
- Investment Obligation: A minimum investment of HK$30 million in permissible assets is mandated, including (i) a minimum investment of HK$27 million in the permissible financial assets and non-residential real estate and (ii) HK$3 million in a new CIES Investment Portfolio to be managed by the Hong Kong Investment Corporation Limited. The portfolio will be dedicated to investing in companies and projects related to Hong Kong. Its main objective is to support the growth of innovation and technology industries, as well as other strategic sectors that contribute to the long-term development of Hong Kong’s economy.
- Permissible Investment Assets:
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- Equities listed on the SEHK;
- Certain debt securities;
- Certificates of deposits (with restrictions);
- Certain subordinated debt;
- Eligible collective investment schemes, including OFCs managed by Type 9 (asset management) licensed corporations or registered institutions;
- Ownership interests in LPFs; and
- Non-residential real estate in Hong Kong (subject to a cap of HK$10 million).
Moving forward, investors and fund managers are encouraged to assess and potentially restructure current investment vehicles to align with the CIES and stay abreast of further details as the scheme’s guidelines are finalized.
Our team stands ready to provide bespoke advice on how the CIES can be incorporated into your investment strategies and to support the establishment of compliant fund structures.
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[1] For more information about the CIES and the list of permissible investment assets, please refer to the Hong Kong government’s announcement on December 19, 2023.
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