Investors seeking to establish a pooled fund in HKSAR have two options:
- creating unit trusts (requires concluding a trust agreement);
- establishing a VCC in HKSAR.
Creating a non-retail fund in HKSAR requires its managers to use entities incorporated in other countries. For that, they must:
- comply with the laws of the country where a fund is set up;
- consider factors relevant to the management structure;
- consider tax consequences, any offers for registration or listings in other markets.
There is also a limited partnership that provides more tax incentives for fund managers.
Regulation of Pooled Funds in HKSAR
Non-retail funds seeking to make a securities offering (including to professional investors) must ensure compliance with the SFC criteria. Individuals seeking to engage in regulated transactions with securities must obtain a license of a pooled fund manager in HKSAR.
A license is also required for engaging in operations with assets in regulated markets. Establishing an LPF in HKSAR (an option which is yet available) will require compliance with particular requirements for an LPF.
HKSAR: Obtaining a License of a Fund Manager
Managers of non-retail funds seeking to engage in asset management activities must obtain a license from the SFC. After obtaining a license, managers must ensure compliance with supplementary requirements & bear responsibility for high-risk operations, namely:
- overall market activities;
- credit & repurchase contracts;
- managing interest, assets, conflicts, risks & conflicts;
- leveraged buyouts.
After getting a license, managers must ensure compliance with the requirements under which they are held responsible for their funds’ overall operation. More specifically, they must demonstrate proper discretion & care in selecting & appointing custodians. Adherence to criteria for custodian agreements & disclosure of custodian arrangements is also required.
Because pooled funds must only comply with criteria for offering securities, they mustn’t adhere to any requirements related to corporate governance. That said, they must still ensure compliance with the requirements for NAV. In particular, managers of funds are to ensure that their entities’ financial reports are audited by independent auditors. They must also submit audited reports to the respective regulator annually.
Considering setting up a pooled fund in HKSAR? Need advice on the regulation of pooled funds in HKSAR? Why not contact IQ Decision UK?