#1HONG KONG MONETARY AUTHORITY 香港金融管理局 Hong Kong: Asia's premier private equity hub 18 May 2020#2Hong Kong is the largest PE hub in APAC after Mainland China. Capital-under-management of PE funds 2019 USD bn 700 600 500 400 300 160 200 100 0 China Hong Kong South Korea India Japan Note: Capital-under-management is the total fund amount currently managed by the PE firm either deployed or available to invest Source: AVCJ Australia Singapore 2#3Steady growth in number of PE firms in Hong Kong Total number of PE & VC firms in HK 600 500 400 300 565 529 459 435 200 412 100 2015 2016 2017 Note: The figures above cover private equity or venture capital firm with an office located in Hong Kong. Source: AVCJ 2018 2019 3#4China - the largest contributor to high-growth APAC PE investment market APAC PE investment market $200B 1,250 Total APAC PE Investments (2019) Australia 6% South Korea 1,000 12% Japan 7% Others 3% 150 750 100 500 50 Value 250 China (including Hong India 24% 0 2013 14 15 16 17 18 Kong) 39% Count --2013-17 average Note: Excludes real estate and infrastructure Sources: Asia-pacific Private Equity Report 2019 by Bain & Company, AVCJ South East Asia 9% 4#5Hong Kong - springboard to capture Mainland China opportunities Central government supports Policy support engaging HK PE funds to finance GBA innovation & tech. enterprises Familiar business culture Culture Duo official language Location Tax Most convenient access to Mainland China Unparalleled benefits under Mainland-HK DTA Tax treatment for HK citizens working in GBA Hong Kong 5#6Hong Kong at the center of Asia's burgeoning PE market Greater Bay Area (GBA) Initiative creates an integrated financial and innovation zone around Hong Kong GBA being the largest bay area in the world has huge growth potential Hong Kong will benefit from the development of GBA. Hong Kong Shenzhen Guangdong Province • China's "Silicon Valley" The World's Factory Population, trade and capital flows create opportunities for payment, banking and wealth management services Strengthen Hong Kong's status as a global offshore RMB business hub International Financial Center San Francisco New Greater York GBA Bay Area City Tokyo Area GDP 0.8 1.7 1.5 1.8 (USD trn) Area 17,900 783 56,000 36,800 (sq.km) Population (mn) 7.6 8.6 70.0 43.8 • Enjoy mutual financial market access in the GBA Source: Fung Business Intelligence, China Council for the Promotion of International Trade, Constitutional and Mainland Affairs Bureau 6#7Hong Kong - platform for inflow & outflow of China investment Hong Kong consistently originates and intermediates >60% of China's inward foreign direct investment (FDI) and outward direct investment (ODI) USD bn 350 300 250 China's FDI & ODI 196 158 200 146 123 108 150 88 100 50 112 118 120 126 126 131 0 2012 2013 2014 2015 2016 2017 61% 63% 65% 67% 63% 66% China ODI HK's share of total China FDI Source: China's Ministry of Commerce 7#8Hong Kong - robust financial markets $ Stock Market Global #1 in IPO fundraising in 6 out of last USD 194 authorized institutions, including 78 of the world top 100 III 3,136 bn Assets¹ Banking 10 years USD Market Capitalisation¹ 4,893 USD bn G3 and local currency bond issuance1 Bond Market 560 bn #3 in Asia ex-Japan, after Mainland China & Korea USD Asset & Wealth Asset under management² Management 3,059 More than 1,600 licensed fund managers bn Notes: 1. as of 31 Dec 2019, 2. as of 31 Dec 2018 Source: HKMA, HKEX, ADB, SFC, CBRC, FDIC, EBA, MAS, BOJ, IMF, SNB, BIS, Financial Supervisory Service of Korea 8#9Hong Kong - destination for business substance Wide selection of service providers . Banking 78 of the world's top 100 banks present Ranked #2 on talent in Asia Universities . • 3 universities in world's top 50 2 universities in Asia's top 10 2 EMBA programmes in world's top 5 Fund management Legal • • • All top 20, & 70 of the top 100 glglobal money managers present • >42,000 staff in AWM business >50% global 100 law firms present >10,000 practicing solicitors & barristers (incl. registered foreign lawyers from 33 jurisdictions) Academy of Finance • Accounting • >45,000 CPAs Professional training, cross- sector expertise sharing and collaboration in applied research Enhanced Competency Framework Develops banking talents Source: IMD World Talent Ranking 2019, Hong Kong Institute of Certified Public Accountants, Census and Statistics Department, The Law Society of Hong Kong, HKTDC, InvestHK, SFC, QS World University Rankings 2020, Financial Times EMBA Ranking 2019, Department of Justice, Investment & Pensions Europe, HKMA 9#10Hong Kong - Presence of leading asset owners and PE managers Examples of large asset owners in HK China Investment Corporation 15 out of 20 top PE firms (by PEI) present in HK 1 Blackstone 2 The Carlyle Group 3 KKR Abu Dhabi Investment Authority 4 CVC Capital Partners All Pensions Group (apg) 5 Warburg Pincus 6 Bain Capital Hong Kong Monetary Authority 7 EQT 9 Canada Pension Plan Investment Board 10 Apollo Global Management Neuberger Berman Group Ontario Teachers' Pension Plan 12 TPG 15 Apax Partners Nuveen 16 General Atlantic 18 Permira Advisers The Church Pension Fund 19 Advent International 20 Silver Lake and the list goes on Source: PEI, Thinking Ahead Institute's Asset Owner 100 report, Al300 Survey, Google 10#11Hong Kong - international asset management hub Continuous growth in conventional and alternative asset management. AUM USD trn USD bn 2018 3.1 500 18.9 2015 2.2 2010 1.3 +15.5x 2005 0.6 300 2000 0.2 400 AUM of alternative funds (2017) Asia's largest hedge fund hub and second largest PE centre after China 450 63.2 200 # licensed asset managers 100 5.6 9.9 2018 2017 2016 2015 2014 1,643 141 90 90 67 1,477 0 1,348 1,135 +1.6x 1,031 Source: SFC, AVCJ, Preqin ■Private equity* By capital under management Hedge Fund AUM China Hong Kong South Korea Japan Australia India Singapore Philippines 29.6 17.6 66 41 36 1 11#12HK's new PE platform 149 營用燒餅 LAWS OF LAWS OF LAWS LAWS ONG KONG HOND KONG LAWE 香港法 中華人民共和國 LAWS OF HONG KO 香港特別行政區基本法 Fund level tax exemption New limited partnership law Carried interest tax treatment 12#13Offshore model US taxable investors Non-US & US tax exempt investors Participants Occasional travel outside HK Carried Interest Vehicle (Non-HK) • High set up & Feeder Fund (Non-HK) General Partner (Non-HK) Fund (Non-HK limited partnership) Investment Manager (Non-HK company) SPVS Sub Manager (HK company) Investments • maintenance cost Intensifying burden on audit, valuation, substance Tax & regulatory risks Local Sub-Advisor (Investment jurisdictions) 13#14Limited Partnership Fund ("LPF") regime As good Business- friendly Simple registration No need for- authorization as other fund at fund level hubs 14#15Timetable 2020 March 2020 LPF Bill glazed 31 August 2020 Target effective date OND SONG LAWS HON HOWE 0429 www 中華人民共和國 LAWS OF HON 15#16Hong Kong's new solution for the industry Global Investors LPF (HK) SPVs Participants GP (HK/offshore) IM (HK / offshore) List of potential users • • • VC, PE & buy-out funds RE funds Infrastructure and projects funds Special situations / hybrid funds Credit funds Funds that invest in digital assets, such as cryptocurrency & virtual assets Funds that invest in public equity & other liquid assets (e.g. hedge funds and long only funds) Assets 16#17Key features (1) Governing Law LPF Ordinance (Bill to be introduced into LegCo) Registration • With CR, through lawyer • Hong Kong Registered Office • Fixed registration fee Capital Duty on contributions from LPS Information made publicly available Nil Details of the fund, GP, IM & presenter of the application, but not the investors Statutorily prescribed safe Very broad harbour activities for LPS Fund legal personality No separate legal personality 17#18Key features (2) General Partner Custody, Administration and audit requirements Individual, body corporate or limited partnership • • "Proper custody arrangements" Requirement to appoint an independent auditor to audit financial statements of the fund on an annual basis No prescribed administration requirements except for AML obligations. If the fund is managed by a HK licensed fund manager, certain custody, audit and appointment of counterparty requirements apply 18#19Key features (3) LPs' transfer of interest in • Subject to the LPA terms a limited partnership fund Statutorily prescribed voluntary winding up process 1. GP files a notification of dissolution with CR within 15 days after the fund is dissolved 1. Unless court orders otherwise, GP to dispose of assets, settle liabilities and distribute proceeds in accordance with LPA 19#20Key features (4) Extent of Freedom of Contract On key operation of the LPF as determined by the LPA, including - the admission & withdrawal; rights & obligations of partners; • investment scope; • financial arrangement (capital contribution, capital withdrawal, distribution of proceeds, clawback obligations etc.) provided the fund is solvent 20 20#21How to get started? One GP and at least one LP LPA that complies with the Ordinance Fund is established for a lawful purpose Compliance with naming conventions of the Ordinance Registered office in Hong Kong 21 21#22Thank you & stay in touch! Anson Law Hong Kong Monetary Authority Market Development Division [email protected] Linked in 22