Starting up a Hedge Fund in Hong Kong? Should I Use a HK, BVI, or Cayman Islands Structure?
This document has been prepared by Charles Russell Speechlys LLP with Carey Olsen Hong Kong LLP for informational purposes only. Refer here for the PDF version.
Introduction
Hong Kong’s status as an open jurisdiction offers hedge fund managers unparalleled flexibility to choose the domicile of their fund structure, free from restrictive local mandates. This allows managers to align their fund’s setup with strategic goals, whether targeting global institutional capital or regional investors.
While the Cayman Islands has been the “gold standard” for fund raising over many decades, the landscape is evolving, and managers are increasingly being exposed to alternatives such as the British Virgin Islands (BVI) and Hong Kong’s own domestic offering - Open-Ended Fund Company (OFC).
In this joint article, Gaven Cheong (Partner at Charles Russell Speechlys) and Michael Padarin (Managing Partner and Head of Investment Funds Hong Kong at Carey Olsen) set out a brief overview of the Cayman Islands, BVI, and Hong Kong fund regimes. A comparison is then made across these 3 jurisdictions based on some of the more important criteria for managers when considering their structuring choices.
Cayman Islands Exempted Company
The Cayman Islands is a premier jurisdiction for investment funds, with over 12,900 mutual funds and 17,300 private funds registered as of March 2025. The Exempted Company structure is highly favoured for its flexibility and tax-neutral status, making it ideal for hedge funds targeting global investors. Its advantages include global recognition, a robust regulatory framework overseen by CIMA, and support for complex fund structures. However, the higher setup and ongoing costs compared to other jurisdictions (which have seen material increases over the years) have caused more cost-sensitive investment managers to actively explore alternatives, particularly as fund-raising becomes more challenging and managers seek to trim their start up costs.
BVI Professional Fund
The British Virgin Islands (BVI) offers multiple different regulated fund types, including the Professional Fund structure, which is popular among sophisticated investors. As of 2024, there were 866 Professional Funds registered, with the total number of active mutual funds reaching 2,139 by end of 2024. BVI funds benefit from a business-friendly legal environment, low setup and ongoing costs, and tax neutrality. The other pros include fast establishment times, commercial-friendly but robust financial regulatory regime, and cost-effectiveness in fund establishment and maintenance, making it attractive for smaller or mid-sized funds. The cons are that global institutional investors are slightly less familiar with the BVI route compared to Cayman, which might affect its appeal for investment managers targeting an institutional investor base.
Hong Kong Open-Ended Fund Company (OFC)
Hong Kong's Open-Ended Fund Company (OFC) regime, introduced in 2018, has seen the establishment of 554 OFCs as of April 2025. The OFC structure is designed to be cost-effective and flexible, catering to both local and international investors. While the OFC is meant to “mirror” many of the characteristics and mechanisms found in the Cayman corporate structure, it is hampered by its less established track record, and potentially higher regulatory oversight and restrictions. Geo-political issues over the past few years have also dampened enthusiasm for the OFC, although with the introduction of an SFC-administered government grant scheme (covering 70% of set up costs for private OFCs, originally up to a maximum of HK$500,000, but reduced to HK$150,000 from April 2025) which has recently been extended to year 2027, the OFC has seen a boost in its popularity particularly among PRC managers.
Comparison table between Cayman Islands, BVI, and Hong Kong fund Structures
The table below outlines the key differences between the Cayman Exempted Company operating as a Mutual Fund, BVI Professional Fund, and Hong Kong OFC, providing a clear reference for choosing the optimal structure.
Category |
Cayman Exempted Company |
BVI Professional Fund |
Hong Kong Open-Ended Fund Company (OFC) |
|---|---|---|---|
|
Regulatory Oversight |
Regulated by CIMA under the Mutual Funds Act. Annual audits, AML compliance mandatory. |
Regulated by BVI FSC; for professional investors (≥$100K investment or professional investors). Annual audits, AML compliance required. |
Regulated by SFC under the Securities and Futures Ordinance. Mandatory registration, annual audits, AML compliance. Must appoint a licensed investment manager. |
|
Setup Costs*
|
∼$5,889
(CIMA registration fee ~$4,482, CIMA application fee ~$366, government incorporation fee ~$854, government fees and duties ~$187,). |
∼$7,775
(FSC registration fee ∼$2,050, company incorporation fee ∼$1,000, BVI registry filing fee ~$925, registered office and authorised representative fee ~$3,000, economic substance declaration ~$350). |
∼$1,282–$1,332
(SFC registration fee ∼$611, Companies Registry incorporation fee ∼$389, business registration fee ∼$282). |
|
Ongoing Costs**
|
∼$8,126/year
(Annual government fee ~$1,128, CIMA annual fee ∼$4,482, CIMA FAR filing fee ~$366, annual registered office fee ~$ 2,150).
|
∼$5,375/year
(FSC annual renewal fee ∼$1,200, BVI registry annual fee ~$550, economic substance annual declaration ~$350, annual registered office and annual authorised representative fee ~$3,000). |
∼$50–$100/year
(Companies Registry annual return fee ∼$13, potential minor SFC filing fees ∼$38 for specific changes). |
|
Time to Establish
|
∼3–4 weeks (incorporation: 1–3 days; CIMA registration: 2–4 weeks). Excludes time for drafting fund documents by legal counsel. |
∼3-4 weeks (incorporation: 1–2 days; FSC approval: 2–4 weeks). Excludes time for drafting fund documents by legal counsel. |
∼3–4 weeks (incorporation: 5–7 days; SFC approval: 15–20 days, processed concurrently). Excludes time for drafting fund documents by legal counsel. |
|
Investor Appeal |
High: Globally recognized, preferred by institutional investors (US, APAC, Middle East). Robust infrastructure. |
High: Attracts sophisticated investors, but strong recognition amongst Asia-based investors. |
Moderate: Growing recognition in Asia, but less familiar to global institutional investors compared to Cayman. |
|
Scalability |
Excellent: Supports growth from small to large scale, and caters for diverse investment strategies. Easy to list on exchanges. |
Good: Suitable for small to large- sized funds and supports diverse strategies. |
Good: Flexible for open-ended structures, supports diverse strategies. Limited by HK’s newer fund regime. |
|
Tax Benefits |
No corporate, capital gains, or withholding taxes. Tax-neutral jurisdiction. |
No corporate, capital gains, or withholding taxes. Tax-neutral jurisdiction. |
Profits tax exemption for OFCs investing in qualifying assets. Subject to HK profits tax otherwise. |
|
Beneficial Ownership Confidentiality |
High: No public disclosure of investors/directors. Enhanced privacy laws. |
High: Privacy for professional investors, no public filings. |
Moderate: No public investor disclosure, but SFC requires manager/director details. Less robust privacy laws than Cayman/BVI. |
|
Structuring Options |
|
|
|
|
Ease of Amendment of Fund Terms and Filing Requirements |
Moderate: Amendments to fund terms (e.g., offering memorandum) require board approval, investor consent for material changes. CIMA notification/filing needed for key changes (e.g., directors, auditors). Annual filings include audited financials, FAR form. |
Moderate: Amendments need board approval, investor consent for significant changes. FSC notification required for updates. Annual filings include audited financials, compliance return. |
Low-Moderate: Amendments require board approval, investor consent for material changes, and SFC approval for key updates (e.g., offering documents). Annual filings include audited financials, compliance reports. More stringent SFC oversight. |
|
Recommended Use Case |
Open-ended hedge funds targeting global institutional capital, growth, and diverse strategies, especially with complex structures like SPCs. |
Open-ended hedge funds targeting sophisticated investors (potentially also those interested in the virtual asset related sector), balancing cost and flexibility, with simpler or mid-sized structures. |
Open-ended hedge funds focused on Asian markets, leveraging HK’s financial hub status, or requiring a licensed manager, with straightforward or umbrella structures. |
* "Setup Costs" refers to government registration fees and does not include costs charged by service providers (such as professional fees).
** "Ongoing Costs" excludes service provider costs such as registered office, fund administration, and audit fees.
Conclusion
Choosing the right fund structure depends on your strategic priorities. The Cayman Exempted Company remains the preferred choice for managers targeting global institutional investors, offering unmatched recognition and regulatory reliability, though at higher costs. The BVI Professional Fund provides a cost-effective alternative with strong privacy and flexible structuring options, ideal for sophisticated investors and managers active in the virtual asset related sector. The Hong Kong OFC, with its low ongoing costs and regional appeal, suits managers focused on Asian markets or those leveraging Hong Kong’s financial hub status. By weighing the criteria above, managers can select a structure that aligns with their fund’s goals and investor base in a way that optimises their fundraising prospects, and their ability to maximise investor returns.
For more information on Hong Kong OFCs, please get in touch with our Financial Services Regulation & Funds Partner, Gaven Cheong, or your Charles Russell Speechlys contact.
For more information on BVI and Cayman Islands fund structures, please get in touch with Investment Funds Partner, Michael Padarin at Carey Olsen.
