All OFCs (no matter privately or publicly offered) are required to be registered by the SFC pursuant to the Securities and Futures Ordinance (SFO) and have to comply with the SFO, Securities and Futures (Open-ended Fund Companies) Rules and Code on Open-ended Fund Companies. To seek registration, the OFC should have a board of directors (the directors owe the OFC a fiduciary duty and statutory duty of care, skill and diligence), an investment manager (licensed or registered for Type 9 regulated activity) for the day-to-day investment management functions of an OFC, and a custodian for safekeeping of assets. The OFC should also comply with various requirements on investment restrictions and disclosures etc. Further, the OFC must not be a business undertaking for general commercial or industrial purpose.
Just like unit trusts and mutual funds, OFCs can be offered to the public if they have obtained the authorization from the SFC. In line with other publicly offered funds authorized by the SFC, public OFCs (i.e. OFCs which are publicly offered) must also meet the requirements of the SFC Handbook for Unit Trusts and Mutual Funds, Investment-Linked Assurance Schemes and Unlisted Structured Investment Products (SFC Products Handbook) (including the Code on Unit Trusts and Mutual Funds).
Learn more about fund authorization
Private OFCs cannot be offered to the public e.g. offered to professional investors only. They have to be registered by the SFC as per the OFC regulatory requirements but do not need to seek SFC’s authorization and thus are not subject to the requirements in the SFC Products Handbook. This gives private OFCs greater flexibility to tailor their investment and borrowing features to the needs of private investors.
Private OFCs are subject to a limitation in the investment scope to the effect that at least 90% of its gross asset value have to be invested in assets the management of which would constitute a Type 9 regulated activity (i.e. securities, futures) and cash, bank deposits, certificates of deposit, foreign currencies and foreign exchange contracts.
Investors should note that SFC registration or authorization does not represent an endorsement or a recommendation of the SFC. Investors should seek professional advice if they have questions as to their investment in an OFC.
13 August 2018