Interview with Effie Vasilopoulos – Having a global presence in the alternative fund space in the US, Asia and London has given US law firm Sidley Austin LLP a unique opportunity to grow with its clients, and Hong Kong is no exception. Sidley has 150 lawyers in its global fund group, 25 of whom are based in Hong Kong including partner Effie Vasilopoulos.
“We’ve been active in the alternative fund space in Hong Kong for 10 years and have a leading market share. We’ve been here from the beginning and this has enabled us to grow with our clients”, explains Vasilopoulos.
Vasilopoulos believes Hong Kong’s favourable tax regime has helped its hedge fund industry blossom. Top-level corporate tax is just 16.5%, but managers can legitimately structure their arrangements and reduce that significantly. This, she says, makes Hong Kong a highly efficient tax jurisdiction: “There are no local capital gains taxes, withholding taxes or foreign corporation taxes to act as a disincentive.”
Hong Kong has more of a balance between a regulatory framework that is robust and protective of investors’ interests, whilst also respecting the interests of business and allowing them to succeed commercially.
Vasilopoulos notes that in the last 12 months record numbers of fund managers have returned to Asia. “There’s been a strong momentum to get pre-existing plans on track. Our pipeline for the rest of this year is the strongest it’s been since pre-crisis.”
Vasilopoulos attributes this to both global growth and intra-Asia growth: “Generally we help global clients who choose Hong Kong as their base so there’s an entire transaction around setting up in the city and advising on what they can do more broadly in Asia. But there’s also a developing theme around other Asian institutions expanding into Hong Kong such as Japanese, Korean and Mainland institutions.”
China and other key markets opening up have acted as a catalyst for start-ups in Hong Kong, not to mention the near-universal belief that Asia is where the action will be for the next five years. But Vasilopoulos thinks the SFC should also be given credit: “The SFC kept a cool head during the financial crisis and didn’t intervene in a way that panicked the market. Market participants emerged with a renewed sense of confidence in the regulatory regime here.”
As more US institutions funnel assets into Asia, there are concerns over the implications of Dodd-Frank amongst Hong Kong’s hedge fund community. The good news, says Vasilopoulos, is that more clarity has emerged in the last six months surrounding SEC adviser registration.
“Many clients here don’t manage money from a US office. This means they’ll be able, in the vast majority of cases, to continue to manage unfettered amounts of US assets without registering, but they will however be required to file with the SEC as an Exempt Reporting Advisor.”
There is, however, one potential regulatory hurdle that fund managers need to be more aware of: registering as Commodity Pool Operators and/or CTAs and becoming members of the National Futures Association. Vasilopoulos says uncertainty remains but it could become an additional layer of compliance. “This is perhaps the dark horse in Hong Kong’s hedge fund community. We should have more clarity over this issue in the next three to six months."
Effie Vasilopoulos is a partner with Sidley Austin LLP