HONG KONG: Consultation on open-ended fund companies

Thursday March 27 2014

The Financial Services and the Treasury Bureau (“FSTB”) of the Government of the Hong Kong Special Administrative Region has published a consultation paper on the proposal to introduce a new open-ended fund company structure to expand Hong Kong’s legal structure for investment fund vehicles.

Currently, an open-ended investment fund may be established under the laws of Hong Kong in the form of a unit trust but not in corporate form due to various restrictions on capital reduction under the Companies Ordinance. The consultation paper aims to put forth proposals to enhance Hong Kong’s legal infrastructure for investment fund vehicles by introducing a new open-ended fund company (“OFC”) structure to complement the existing unit trust structure.

While publicly offered OFCs will be subject to the same regulatory requirements applicable to existing publicly offered funds, it is proposed that privately offered funds be given some flexibility to pursue their investment strategies subject to compliance with basic governance principles and conduct requirements to be observed by their managers that are in line with international regulatory standards.

The new OFC vehicle will be established under the Securities and Futures Ordinance (“SFO”) and be regulated and supervised by the Securities and Futures Commission (“SFC”).

It is proposed that the OFC will be structured in corporate form with limited liability and variable share capital. The proposed structure will have characteristics similar to a conventional limited company in that it will have a separate legal personality; it will be governed by a board of directors; the liability of its shareholders will be limited to their shares in the company and its constitutional documents will consist of Articles of Incorporation.

The day-to-day management and investment functions of the OFC must be delegated to an investment manager licensed by or registered with SFC to carry out Type 9 (asset management) regulated activity, and appointed by the OFC board.

Comments should be provided in writing no later than 19 June 2014.

Click on the above link for the consultation.