Hong Kong is in the middle of one of the most significant financial repositioning periods in its recent history. Its stock exchange posted a second consecutive year of record profits in 2025, with net profit rising 36 per cent to HK$17.8bn. The city ranked as the second most active IPO destination globally, behind only the United States. More capital was raised from Hong Kong listings in the first two weeks of 2026 than in London across the whole of 2025.

At the same time, the government is weighing sweeping changes to its carried interest tax regime that could allow managers of hedge funds, private equity, venture capital, and private credit vehicles to earn performance fees free of all tax. The proposals, described by those familiar with the plans as potentially a “big bang” of tax reform, are intended to put Hong Kong on the same footing as Emirati hubs such as Dubai, and to recommit the city to its position as the premier asset and wealth management centre in the region.

And in a further signal of where sophisticated capital is moving, Hong Kong’s most prominent business dynasty has spent the past two years systematically converting assets into cash – not to distribute to shareholders, but to hold in reserve while waiting for the right moment to redeploy.

These are not unrelated stories. Together they describe a Hong Kong where institutional and family-office capital is in active motion, where the regulatory environment for private markets is becoming more favourable, and where investors who understand the landscape are positioning accordingly.

For HNW expats based in Hong Kong, the question is not whether private markets are relevant. It is which part of the private markets opportunity is worth paying attention to right now – and why.

The Private Credit Reset and What It Means for Hong Kong Investors

Private credit globally is going through a period of significant stress. The asset class, which grew from a relatively niche corner of institutional finance into a $22tn industry over the past two decades, is now facing a wave of redemption requests, fund gates, and questions about valuation integrity that have rattled investors across the US and Europe.

Business development companies – funds with stakes in private credit – have been caught in a widespread sell-off. Managers including Apollo and BlackRock have limited withdrawals as redemption requests accumulated. Roughly a quarter of private equity funds raised since 2015 have failed to earn the return threshold at which firms collect performance fees. And concerns are mounting over lending standards, particularly in software-adjacent deals, where exposure to AI displacement risk is estimated to affect more than half of private credit transactions made over the past decade.

The FT’s editorial board has called the current period a moment for a healthy reset in the private credit market – one where sloppy underwriting standards will need to tighten, transparency will need to improve, and investors will need to be more discerning about where and how they allocate.

This context matters for Hong Kong-based investors in two ways.

First, the problems that have emerged in US and European private credit markets are largely concentrated in broad, open-ended retail vehicles – funds that took in capital from unsophisticated investors who did not fully understand illiquidity risk, and that invested heavily in leveraged buyout-adjacent lending during a period of record-low interest rates and inflated valuations. The difficulties are real, but they are specific. They do not define the entire private credit asset class.

Second, the reset is creating conditions in which well-structured, well-managed private credit strategies – those with defined terms, conservative loan-to-value ratios, and genuine capital protection provisions – stand out more clearly from the noise than they did during the boom years.

Hong Kong’s Changing Position in Private Markets

The context for private markets investment in Hong Kong has shifted materially over the past 18 months.

The IPO boom has been driven substantially by US-China tensions that have pushed mainland Chinese companies to list in Hong Kong as a risk mitigation strategy. Three-quarters of the largest Chinese firms listed in New York now carry parallel Hong Kong listings. Average daily turnover on the exchange rose 90 per cent in 2025 to HK$250bn, a sign of how quickly institutional capital has returned to the market.

The proposed tax reforms would extend Hong Kong’s existing zero per cent concessionary tax rate on carried interest to a much wider range of asset classes – including private credit, hedge funds, venture capital, and family offices. The change has been in progress for several years but has accelerated as Hong Kong seeks to close the gap with rival financial centres. A mid-size Chinese fund manager that recently chose Hong Kong over Singapore and Dubai cited the combination of geopolitical risk management, quality of life, and the prospective tax environment as decisive factors.

For expat investors, these developments matter because they affect where the most capable private markets managers choose to operate. A regulatory environment that is actively courting private credit and alternative investment managers creates a different quality of local market access than one that is merely tolerant of it.

What the Smartest Capital in Hong Kong Is Actually Doing

Li Ka-shing’s approach to the current environment is instructive, not because it should be replicated by individual investors, but because it illustrates a principle that applies at any scale.

Hong Kong’s most prominent tycoon has spent the past two years converting mature assets – ports, utilities, rolling stock, retail networks – into cash. The disposals have been substantial: the exit from UK Power Networks alone was achieved at more than three times the original 2010 purchase price. The pattern is not sentimentality in reverse; it is the application of a consistent operating model that prioritises flexibility over permanence.

Analysts and advisers close to CK Hutchison describe the company’s approach as having strong private equity characteristics: enter brownfield assets that are undervalued or badly run, improve them, and move on when the return has been realised. The holding period is patient but not indefinite. The capital is not distributed to shareholders. It is held in reserve until an opportunity worth committing to emerges.

The lesson is not that individual HNW investors should liquidate their portfolios. It is that the investors with the longest track records of wealth preservation in Hong Kong are those who distinguish between capital that is working and capital that is merely deployed – and who maintain the flexibility to move when conditions change.

For private markets, this translates directly. The investors who benefit from private credit and litigation funding are those who commit capital on clearly defined terms, understand the return and liquidity profile before they sign, and hold through the full investment term. The investors who struggle are those who enter broad, opaque vehicles under the assumption that private markets returns are guaranteed, and who discover the meaning of illiquidity only when they try to exit.

Private Credit Investment in Hong Kong: The Structural Case

Against this backdrop, what is the actual case for private credit investment from a Hong Kong base?

Non-correlation in a volatile market

Hong Kong equity markets, despite their 2025 recovery, remain exposed to the full range of geopolitical and macroeconomic risks affecting the region. Oil exports through the Strait of Hormuz have fallen to approximately 8 per cent of normal volumes, creating energy supply uncertainty that feeds directly into logistics costs, currency movements, and equity valuations across Asia. US tariff policy continues to generate uncertainty for export-dependent regional economies.

Private credit returns are not driven by these variables. A well-structured loan portfolio generates income through interest and repayment schedules tied to borrower covenants and asset security – not to the price of Brent crude or the direction of the Hang Seng.

Defined income in an uncertain rate environment

The carried interest tax reform proposals reflect a broader recognition in Hong Kong that private markets returns – structured correctly – are a more reliable source of income than traditional fixed income in the current environment. Sovereign bond yields remain volatile. Dividend yields from listed equities are subject to the same market risks as the underlying shares.

A private credit programme with clearly defined return targets, a fixed term, and capital protection provisions built in from the outset removes a significant source of uncertainty from the portfolio. The return range is known. The term is set. The income schedule is contractual rather than discretionary.

Access without the retail market risks

The problems now visible in US and European private credit markets have a common thread: capital from investors who did not fully understand what they were buying, channelled through structures that prioritised scale over suitability. A co-founder of one alternative investment group, upon discovering that a $1tn asset manager was marketing its flagship private debt fund to his 77-year-old retired doctor father, noted the fundamental difference between how a novice retail investor and an Asian sovereign wealth fund underwrite the same investment.

For HNW investors in Hong Kong who qualify to access private credit through appropriate structures – with minimum thresholds that reflect genuine investor sophistication rather than retail distribution logic – the access point is different. The due diligence is different. The terms are different. And the outcomes, accordingly, are likely to be different.

Litigation Funding: Hong Kong’s Overlooked Private Markets Opportunity

Private credit tends to dominate the conversation around alternative income strategies in Hong Kong. Litigation funding, despite being a well-established institutional asset class globally, receives comparatively little attention in the market.

This is partly a function of familiarity. Private credit has a clear analogue in traditional bank lending. Litigation funding – financing legal claims in exchange for a pre-agreed share of the outcome – has no equivalent in mainstream investment experience, which creates a knowledge gap that most advisers do not attempt to bridge.

But the fundamentals are compelling. Litigation funding returns are generated through legal settlements, not market movements. The correlation with Hong Kong equities, regional currencies, or global energy prices is essentially zero. And the UK government’s recent move to reverse a 2023 Supreme Court ruling that had constrained the sector – specifically to restore funders’ ability to receive a percentage cut of damages – signals a regulatory direction of travel that strengthens the long-term position of reputable managers in the space.

For Hong Kong-based expats managing multi-jurisdictional wealth, the absence of correlation with any of their other asset exposures is not a minor benefit. It is the point of the allocation.

What to Look for as a Hong Kong-Based Investor

The private credit reset underway globally has made due diligence more important, not less. The following questions apply specifically to investors considering private credit or litigation funding from a Hong Kong base.

What is the underlying strategy, and how does it generate returns? Not all private credit is equivalent. Lending to software-adjacent businesses with high AI displacement risk looks very different from secured lending against physical assets or litigation-backed receivables. Understand the loan book or case portfolio before committing.

What are the liquidity terms, stated plainly? The difficulties in broad private credit funds have stemmed largely from a mismatch between investor expectations and structural reality. A credible manager will explain the liquidity position in plain language – including any conditions under which withdrawals may be restricted – before capital is committed.

How does this interact with your Hong Kong tax and reporting position? The proposed carried interest tax reforms are not yet in force. The existing regulatory environment governing private investment products for individual investors in Hong Kong requires careful navigation. An adviser who does not address your specific jurisdictional position is not providing the service the situation requires.

Who are you actually dealing with? Hong Kong’s private markets ecosystem has grown rapidly. Not all of it is well-managed. The investors who have come unstuck in recent months are disproportionately those who were sold products through intermediary channels without direct access to the decision-makers running the underlying strategy. Direct access to a manager who can explain every material feature of the programme is not a luxury – it is a baseline requirement.

The Hong Kong Opportunity Is Not Hypothetical

The combination of a resurgent capital markets environment, a forthcoming tax regime that actively incentivises private markets management, and a global private credit reset that is separating well-structured programmes from poorly designed ones creates a specific window for Hong Kong-based HNW investors.

The investors who are likely to benefit are those who act on clearly defined terms, with a full understanding of what they are buying and why. The investors who are likely to be caught are those who treat the current environment as either too risky to engage with, or so compelling that due diligence can be shortened.

Neither instinct serves the situation. The opportunity is real. So are the risks. The difference is in the structure.

Carey Suen works directly with HNW expat investors in Hong Kong, providing access to private credit and litigation funding programmes with defined terms and direct adviser relationships. The details are at careysuen.com/hong-kong.

This article is for informational purposes only and does not constitute financial advice. Private markets investments carry risk, including the risk of capital loss. Past performance is not indicative of future results. Carey Suen works exclusively with high-net-worth investors who meet the relevant eligibility criteria in their jurisdiction.