The Securities and Futures Commission (SFC) today clarified its regulatory requirements in a circular to facilitate the listing of closed-ended alternative funds on the Stock Exchange of Hong Kong Limited (SEHK).
The new regulatory guidance aligns with the HKSAR Government’s plan to broaden private equity fund distribution as set out in the 2024 Policy Address.
As things stand, the current regulatory regime already allows alternative funds to be authorised and listed on SEHK without any impediments. As such, eligible alternative funds are welcomed to list in Hong Kong (Note 1).
In today’s circular, the SFC clarifies its requirements for authorising closed-ended funds that invest mainly in private and less liquid assets (ie, alternative funds) (Notes 2 and 3). A key criterion is that an alternative fund seeking authorisation should be sizeable with an expected market capitalisation of $780 million (US$100 million). Also, the fund should preferably be able to generate regular income streams, depending on its investment strategy.
“The depth and breadth of investment products available to investors is one of the hallmarks of Hong Kong’s status as an international asset management hub. For closed-ended alternative funds, our door has always been open for them,” said Ms Christina Choi, the SFC’s Executive Director of Investment Products.
“By providing clarity and further guidance to the private equity industry, we believe closed-ended alternative funds could become a new asset class for investors seeking to diversify their investment portfolios and tapping into opportunities in well-balanced portfolios of private assets managed by qualified professional asset management firms,” Ms Choi added.
To balance the potential benefits and risks associated with closed-ended alternative funds, the SFC requires intermediaries to assess clients’ knowledge of these complex products before carrying out a transaction on their behalf. Intermediaries should also ensure their clients’ net worth is commensurate with the risks assumed.
Notes:
- These funds can be authorised under 8.11 (Closed-ended funds) and, if applicable, 8.7 (Hedge funds) of the Code on Unit Trusts and Mutual Funds and listed on SEHK pursuant to Chapter 20 of the Main Board Listing Rules.
- Closed-ended funds are generally subject to redemption restrictions. The units/shares in the closed-ended funds must be listed and traded on SEHK.
- Examples include private equity, private credit, infrastructure equity, and infrastructure debt.
