The Special Administrative Region of China has long and firmly occupied the position of one of the largest capital markets in the world. HK is also a leading center for direct investment, ranking second in Asia after mainland China in total direct PEFs registrations. If you have also chosen this jurisdiction for direct PEF registration in Asia, then today's overview may be of interest to you, as it briefly discusses the regulation of funds in HK.
Hong Kong FDI regulation
Regulation and control over the activities of direct PEFs in HK determines the order of organizational and financial relations of collective investment participants and provides for strict control over the movement of financial resources, which increases the reliability and investment attractiveness of the collective investment market.
The Securities and Futures Commission is the main regulator for attracting private investment in HK. Its functions include:
- licensing and oversight of FDI managers and consultants;
- ensuring compliance with key provisions covering the HK direct PEFs management and marketing.
If you would like to register a direct PEF in Hong Kong, the first thing you should do is seek approval from the Commission.
What is a Qualified Investor?
Professional investors can be both individual and a legal entity. If the interests of the fund are realized in the Special Administrative Region of China, then the investors must confirm the status of a local investor. To do this, they are offered to fill out a special form.
Direct PEF investors are primarily exposed to financial and operational risks. However, there are other types of risk, such as credit, counterparty and liquidity risks, which are often interpreted as events that could impair the investment qualities of the securities.
The fund's liquidity risk is realized when obligations to redeem the fund's securities cannot be met at a reasonable price. Operational risks are associated with the implementation of trading, settlement and valuation procedures by the management company. Human error or technical error are potentially possible.
Most suitable structures
A direct PEF registration in HK can be done in several structures. The general forms of funds with a managerial presence in the country are:
- companies controlled by the GP;
- investment companies established in accordance with the rules of any offshore jurisdiction.
When a licensed legal entity or individual conducts activities in a jurisdiction outside The Special Administrative Region of China, it is necessary for them to ensure that the relevant legal and regulatory requirements of that other jurisdiction are fully complied with.
Obtaining a license for HK fund managers
There are many types of regulated activities in the jurisdiction. However, a HK direct PEF manager should pay special attention to three of them listed below:
- Trading in securities (1)
- Securities advisory (2)
- Asset management (3).
Next, we'll look at each of these types in detail.
Obtaining a Type 1 license in HK
Engaging in the sale of securities requires this type of license without fail. Concluding deals with private capital may also constitute an activity subject to the licensing requirement.
Obtaining a Type 4 license in HK
Investment advice for which you get remuneration, requires this type of license unless such activities are entirely related to Type 1.
Obtaining a Type 9 license in HK
Portfolio management services and making investment decisions for clients will require this license.
If you intend to establish a Hong Kong direct PEF and obtain a license to carry out investment activities in HK, please contact our seasoned professionals for advice.