Fund management & funds
Charltons has considerable experience in providing Hong Kong funds legal advice on investment fund matters including fund formation, structuring (both domestic and offshore), development of fund terms, negotiations with investors and marketing. Our downstream practice includes transactional work as funds commence investment activities, advice on redemptions, fund restructuring, exits (including sales and IPOs of portfolio companies) and regulatory matters. Our clients include international and Hong Kong fund managers, investment advisers, private investment funds (including venture capital, private equity and hedge funds), securities dealers and investors investing into funds.
We have experience in a range of fund entities, including protected cell or segregated portfolio companies, limited liability partnerships, unit trusts and limited liability companies.
We advise on all forms of fund structure, including open-ended and closed-end funds, master / feeder structures, fund of funds, offshore funds and hedge funds. Our team has advised on the launch of funds across the full spectrum of asset classes, including listed stocks, fixed income and derivative securities, property, natural resources, private equity, venture capital, and distressed debt. We have also advised on a range of fund strategies including long / short, arbitrage and socially responsible investing.
In addition to our fund establishment and transactional work, Charltons advises international and Hong Kong fund managers on the regulatory aspects of their financial services operations. We help international and Hong Kong fund managers set up their businesses in Hong Kong, advise on the types of regulated activities which require licensing by the Securities and Futures Commission (SFC) under the Hong Kong Securities and Futures Ordinance (SFO) and related exemptions. We also assist international and Hong Kong fund managers in applying for SFC licences and complying with on-going obligations as SFC-licensed corporations. We also advise on the sale of fund management and investment advisory businesses, including the SFO issues arising from such disposals.
In cooperation with Boase Cohen & Collins, Charltons can assist international and Hong Kong fund management clients in relation to SFC investigations, enforcement and disciplinary matters. Our experience includes advising SFC licensed corporations on misconduct by employees and advising financial intermediaries on potential unauthorised selling of investment products and carrying on “regulated activities” without proper licensing.
Charltons also regularly drafts submissions on proposed changes to securities laws in Hong Kong on behalf of interested parties, including international and Hong Kong fund managers. Charltons provides Hong Kong funds legal advice.
Form of fund vehicle
The form of fund vehicle may be dictated by a number of different factors including, inter alia:
- class of target assets
- type of investors
- financial promotion
- regulatory restrictions
- proposed exit (including sales and IPOs)
- tax considerations (in particular, the aim is to achieve tax neutrality i.e. absence of tax at the fund level through the use of tax transparent fund vehicles
- investor familiarity (in particular, U.S. investors may be more accustomed to LLP structures)
- market practice
Currently, an open-ended investment fund may be established under Hong Kong law in the form of a unit trust by way of a trust deed, but not in corporate form due to the various restrictions on capital reduction/ redemption of shares of a company incorporated in Hong Kong under the Companies Ordinance (Cap. 622 of the Laws of Hong Kong).
Most open-ended investment funds in the form of mutual funds (which are in corporate form and allow investors to redeem shares at will) seen in Hong Kong are therefore incorporated outside Hong Kong, typically in the Cayman Islands, British Virgin Islands, Bermuda, Luxembourg or Ireland. In addition, there is no segregated portfolio or protected cell legislation in Hong Kong.
The Financial Services and the Treasury Bureau of Hong Kong however published an Open-ended Fund Companies Consultation Paper on 20 March 2014 which sets out the government’s proposals to allow the establishment of open-ended fund companies (“OFC”) under the SFO, to be regulated under a separate OFC Code administered by the SFC. The aim is to encourage more mutual and private funds to domicile in Hong Kong. The relevant consultation conclusions have however not yet been published.
Private equity (“PE”) and other typically closed-ended funds could be established in Hong Kong in the form of limited liability companies, but most PE funds managed from Hong Kong are established in offshore jurisdictions such as the Cayman Islands or the British Virgin Islands in the form of limited partnerships with a general partner responsible for the day-to-day management of the limited partnership.
Charltons has considerable experience in providing Hong Kong funds legal advice on investment fund matters regardless of fund vehicle. Our clients include international and Hong Kong fund managers, investment advisers, private investment funds, securities dealers and investors investing into funds.