30 March 2021
.jpg)
An increasing number of investment managers in Hong Kong are considering the adoption of the open-ended fund company (OFC) structure following announcements by the government of subsidy initiatives to cover 70% of expenses paid to local professional service providers for the establishment of OFCs and the re-domiciliation of funds as OFCs. As a key operator of an OFC, the investment manager should be well informed of its obligations and duties under the OFC regime.
To be eligible to act as an OFC investment manager, it must be licensed by the Securities and Futures Commission (SFC) for Type 9 (asset management) regulated activities. Accordingly, similar to funds of any foreign jurisdiction or Hong Kong limited partnership funds appointing a Hong Kong SFC licensed investment manager, the investment manager would be required to comply with all applicable laws, regulations, guidelines and codes issued by the SFC, e.g. the Fund Manager Code of Conduct; the Code of Conduct for Persons Licensed by or Registered with the SFC; the Management, Supervision and Internal Control Guidelines for Persons Licensed by or Registered with the SFC; and Guideline on Anti-Money Laundering and Counter-Financing of Terrorism (For Licensed Corporations).
For OFC structures, all investment management functions must be delegated to the investment manager, as well as matters relating to valuation and pricing of assets. Investment managers should also be aware of requirements to keep trading, accounting and other records to explain and reflect the financial position and operation of its activities such as details of all orders initiated or received by the investment manager, details of income received, audit trails of all transactions, all information relating to OFC accounts and transactions records of third parties, all internal reports, accounting / securities ledgers, registers of securities and records of its investment processes. All records and documents relating to its business of an OFC should be maintained for a period of not less than seven years.
Investment managers are advised to ensure that its internal processes and policies on documentation and records are up to date with the latest legal and regulatory requirements.
As a market leader, Deacons has advised on the majority of unlisted OFCs that have been registered with the SFC. We acted for Hong Kong’s first unlisted public OFC, as well as Hong Kong’s first umbrella private OFC. We also advised on over 60 private fund launches in 2020 covering a wide spread of asset classes and fund structures.
For further information, please contact:
Scott Carnachan, Consultant, Deacons
scott.carnachan@deacons.com.hk
