If an investor seeks to start a pooled fund in Hong Kong, they have two options to choose from:
- To create unit trusts (only possible with a trust agreement);
- To establish a VCC in Hong Kong.
In order to establish a non-retail fund in HKSAR its managers have to use entities in other countries. To do so, it is necessary to:
- Follow the laws of the country where a fund is established;
- Take into account factors that are relevant to the management structure;
- Think about tax consequences, any listings or offers for registration in other countries.
Fund managers can also use more tax incentives provided by a limited partnership.
Pooled funds’ regulation
The SFC criteria are necessary to follow for non-retail funds if they want to offer securities. Individuals who plan to participate in regulated transactions with securities in Hong Kong need to get a license of a pooled fund manager.
Moreover, it is also essential to obtain a license to be able to engage in operations with assets in regulated markets. One can obtain an LPF once they comply with all requirements.
Fund manager license in Hong Kong
Managers of non-retail funds who want to engage in asset management activities are obliged to obtain a license from the SFC. Additionally, once they have a license, managers need to make sure that they follow the supplementary requirements and bear responsibility for high-risk operations:
- Overall market activities;
- Credit and repurchase contracts;
- Management of interest, conflicts, assets, risks;
- Leveraged buyouts.
Once managers have obtained their licenses, the supplementary requirements state that they are supposed to be held responsible for the overall operation of their funds. It means that managers should demonstrate proper discretion and adequate care in selecting custodians. It is also required to comply with custodian agreements and to disclose custodian arrangements.
Since pooled funds are only required to fulfill criteria for offering securities, other requirements on corporate governance do not apply to them. However, pooled funds still need to comply with NAV requirements. To illustrate, it is managers’ responsibility to make sure that their funds’ financial reports are audited by independent auditors. Besides, the audited reports need to be submitted to the respective regulator every year.
Are you thinking about establishing your own pooled fund in Hong Kong and need more advice? Do not hesitate to contact COREDO, and we will arrange a consultation for you.