Case Study: How FGA Trust Enabled a High-Net-Worth Client to Achieve a Successful Private Equity Exit
In early 2022, a high-net-worth client established a Hong Kong discretionary trust through FGA Trust, transferring their equity stake in fintech company Reap into the trust structure, with FGA Trust acting as the professional trustee. The client’s core objectives included holding private company shares via a Hong Kong trust for asset protection and multi-generational wealth succession, maintaining flexibility to exit at an optimal market window to maximise private equity returns, and ensuring the entire process was tax-efficient.
After thoroughly understanding the client’s intentions, FGA Trust tailored a complete trust solution. This operation was executed in full compliance with Hong Kong‘s trust legal framework, with the key elements being the customisation of the trust deed and the professional trustee’s strict compliance management.
Key Challenges: Three Critical Issues in Trust-Held Private Equity
During the trust establishment phase, FGA Trust faced three core challenges:
1. Completeness of the foundational trust document
Under Hong Kong’s Trustee Ordinance and common law, the creation of an express private trust requires the “three certainties”: certainty of intention, certainty of subject matter, and certainty of objects. In addition, because the legal relationship between the trustee and the beneficial owner is governed entirely by trust law principles, the content and form of the trust instrument must strictly comply with trust law requirements; otherwise, the trust may be void or unenforceable.
2. The trustee’s authority to dispose of private company shares
The authorised investment scope set out in Schedule 2 of Hong Kong’s Trustee Ordinance (Cap.29) primarily covers government securities, listed securities, unit trusts and other low-risk investments. It does not automatically include the holding or disposal of private company shares. Without express authorisation in the trust deed, a trustee would lack a legal basis to sell such shares at the time of a private equity exit.
3. The settlor’s power to retain control over investments
Under traditional trust concepts, a settlor was expected to step back and lose control over trust assets. However, the client wished to retain a degree of decision-making power over the timing and pricing of any share sale to capture a high-valuation market window. Hong Kong’s 2013 Trust Law (Amendment) Ordinance provides a clear legal foundation for such retained powers.
FGA Trust’s Solution: Key Clauses in the Bespoke Trust Deed
To address the above challenges, FGA Trust drafted a customised trust deed incorporating the following three critical clauses:
Investment authorisation clause: Expressly included private company shares as a permitted asset class within the trust, providing a clear legal basis for the trust’s purpose of holding Reap equity.
Asset disposal clause: Expressly authorised the trustee to sell, transfer or otherwise dispose of trust assets (including private company shares) at an appropriate time, with the price and timing determined by the trustee’s commercial judgment or by the settlor’s written instructions.
Settlor power reservation clause: Under Section 41X of Hong Kong’s Trustee Ordinance, the settlor may retain full authority over the investment direction, timing and price of any disposal of trust assets (including shares). The law makes clear that a trust is not invalid merely because the settlor has reserved any or all investment powers or asset management functions. Such retained powers may be expressly set out in the trust deed or recorded in other documents such as a letter of wishes.
Under the trust structure, FGA Trust as professional trustee strictly complied with the statutory duty of care under the Trustee Ordinance, exercising appropriate skill and prudence in discharging its functions. FGA Trust conducted ongoing asset monitoring and value tracking of the Reap shares held in the trust, ensuring investment risks were properly managed. It also provided regular reports to the settlor, keeping the client fully informed of trust operations.
Execution: Professional Support at the Private Equity Exit Stage
In May 2026, Reap was acquired by Payward for up to US$600 million, with the transaction expected to close in the second half of 2026. During the exit phase, FGA Trust assisted the client in reviewing the valuation and payment terms in the acquisition agreement, ensuring that the trust’s equity interest was transferred at a fair price.
FGA Trust also helped the client complete the stamp duty filing, ensuring the transaction met all deadlines and compliance requirements. Under Hong Kong’s Stamp Duty Ordinance (Cap.117), share transfers are subject to stamp duty at 0.2% of the consideration (0.1% each for buyer and seller), with the duty payable within 30 days of the transfer date.
Distributions from a Hong Kong trust to beneficiaries — whether sourced from Hong Kong or outside Hong Kong — are not taxable in the hands of the beneficiaries in Hong Kong. FGA Trust coordinated the secure settlement of transaction proceeds and trust account management throughout, distributing the sale proceeds to beneficiaries strictly in accordance with the trust deed provisions.
Outcome: A Fully Compliant, Tax-Efficient Exit
With FGA Trust’s professional assistance, the client successfully completed a full exit from their Reap equity investment. This case study demonstrates the core advantages of Hong Kong trusts in the private equity space.
First is the robust legal framework. Hong Kong has a well-established Trustee Ordinance and common law system, providing a solid legal foundation for trust structures. Following the 2013 amendments that removed the perpetuity period for non-charitable trusts, private trusts in Hong Kong can now continue indefinitely, no longer subject to the traditional “rule against perpetuities”. This makes Hong Kong trusts particularly well-suited for multi-generational wealth succession planning.
Second, significant tax advantages. Hong Kong has no capital gains tax and no inheritance tax. Capital‑nature gains from a trust’s disposal of equity are not subject to profits tax, and distributions from a trust to beneficiaries are also tax-free in the beneficiaries’ hands in Hong Kong. Under Hong Kong’s territorial tax system, income derived from assets outside Hong Kong is likewise not taxable in Hong Kong.
Last but not least, the professional execution assurance of the trust company. FGA Trust ensured that all trust and share transfer procedures complied fully with the Trustee Ordinance and the Stamp Duty Ordinance. The exit proceeds can be retained within the trust structure for subsequent investment planning, enabling continued wealth management.
Disclaimer
This case study is for general informational purposes only and does not constitute legal or tax advice. Each client‘s circumstances are unique. Professional legal and tax advice should be sought before establishing a trust or executing an equity exit.