Overseas Hedge Fund Managers

In recent years, there have been more and more overseas hedge fund houses setting up their offices in HK. In many cases the funds managed by these firms are not marketed in HK but only distributed to overseas investors or professional investors (PIs). However, they are required to get a licence from SFC and observe SFC's licensing and conduct requirements. Given that they would not approach the HK retail investors, it seems unduly burdensome for them to comply with certain licensing requirements like local institutions.

Recently SFC issued a circular to provide guidance on a few licensing issues. This initiative was obviously made for encouraging more hedge fund managers to establish their businesses in HK.

Licensing exemption for providing intra-group investment advice

• Some overseas hedge funds managers only set up a research team in HK to provide securities advice to their group companies outside HK. In this case, they are exempt from licensing for Type 4 or 5 under SFO.

Streamlined licensing process for UK or US licensed hedge fund managers

• This is a privilege granted to players in more advanced securities markets. Firms licensed by SEC or FSA, with a good compliance track record and which serve only PIs, would benefit from an expedited licensing process.

Competence requirements for Responsible Officers (ROs)

• Each firm should appoint 2 ROs for each regulated activity and one of them should be always available. For overseas fund houses, some ROs may not be physically located at HK. SFC clarified that at least one RO should be based in HK and then at least another one is immediately contactable at all times by SFC and the HK office's staff.
• SFC would impose the "non-sole" condition on those ROs who have no direct hedge fund management experience.
• ROs may be exempt from taking the local regulatory exam if they have substantial industry experience and take a post-licensing refresher course on local regulations, given that the firm serves only PIs and confirm providing compliance support to the ROs. But in my experience would not easily be granted by SFC.

Office space

• Just like the previously issued FAQ, SFC softly reject the ideas of overseas firms for using business centres or serviced offices as business premises.