The Hong Kong Government and Hong Kong regulators have recently introduced various new initiatives to support the asset management industry as part of Hong Kong’s objective to strengthen its credentials as an asset management hub.
New Capital Investment Entrant Scheme
On 19 December 2023, the Hong Kong Government announced the details of its new Capital Investment Entrant Scheme (New CIES) with an aim to incentivise more high-net-worth asset owners to set foot in Hong Kong and boost investment. The New CIES is expected to generate interest amongst hedge funds and private equity fund managers operating in Hong Kong and may facilitate the creation of new local business opportunities.
Unlike Hong Kong’s previous scheme, collective investment schemes offered privately via Hong Kong’s private placement regime, including the following Hong Kong domiciled structures will qualify as permissible investments under the New CIES:
(1) open-ended fund companies (OFC) registered under the Securities and Futures Ordinance (Cap.571) and managed by corporations licensed by or institutions registered with the Securities and Futures Commission (SFC) for type 9 regulated activities; and
(2) ownership interest in limited partnership funds registered under the Limited Partnership Fund Ordinance (Cap.637).
Under the New CIES, investors will be required to maintain their committed investments of a minimum of HK$30 million in permissible investment assets while permitted to stay in Hong Kong, but will not be required to top up the value of their investment if its market value falls below the minimum threshold. The minimum investment of HK$30 million will require investing at least HK$27 million in permissible investment assets and HK$3 million into a new CIES investment portfolio which will be set up and managed by the Hong Kong Investment Corporation Limited for investments in companies and projects with a Hong Kong nexus.
The financial assets must be deposited and ring-fenced in a designated investment account operated by a Hong Kong Type 9-licensed fund manager or another eligible financial intermediary. Investors will also be permitted to withdraw cash dividends or interest income derived from the permissible financial assets and may elect to switch investments between different permissible financial assets subject to reporting requirements, proper records and the re-investment of trading proceeds in full.
Invest Hong Kong will be responsible for assessing whether applications for the New CIES fulfils the net asset and investment requirements, and the Immigration Department will be responsible for assessing the applications for visa/entry permits, extensions of stay, etc.
The New CIES is expected to officially launch in mid-2024 and additional guidelines on the scheme are expected to be released in Q1 of 2024.
Tokenisation of OFCs
In line with the SFC’s earlier initiatives and guidance issued in November 2023 to intermediaries engaging in tokenised securities-related activities and the tokenisation of SFC-authorised investment products, the SFC has, on 21 February 2024, clarified that OFCs may be offered as a tokenised investment product.
The clarification would mean that interest in privately offered OFCs may also be offered in tokenised form, meaning the creation of blockchain-based tokens that represent or aim to represent ownership in the OFC. The move is in line with the SFC’s support to strengthen Hong Kong’s fintech industry.
Investment managers who are interested in tokenising an OFC are advised to speak to your contacts at Deacons and consult with the SFC. Deacons has a strong regulatory and financial services practice that supports clients in fintech activities including cryptocurrencies and tokenisation of assets.
