Who manages funds?
- Managers of authorised funds must act in the best interests of the fund investors under all circumstances.
- A fund's assets should be held by a trustee or custodian who is independent of the fund manager and acceptable to the SFC. The entrusted assets are also segregated from the assets of the trustee or custodian. Neither the fund manager nor the trustee/custodian can use the fund's assets for its own benefit or debt repayments.
A fund must have a fund manager, trustee and / or custodian acceptable to the SFC before it can be authorised.
Who are these fund managers?
A fund manager must:
- be engaged primarily in the fund management business;
- have sufficient financial resources, proper internal control and written compliance procedures;
- ensure that the company's directors and key personnel have sufficient experience in managing the same kind of fund.
How are fund managers supervised?
Depending on its business nature, a fund manager based in Hong Kong may be required to be licensed by the SFC. A licensed fund manager should comply with relevant provisions under the Securities and Futures Ordinance, and the Fund Manager Code of Conduct. This provides guidance on organisation structure, staff ethics, fund management, operations and client dealings. Agreements between foreign authorities and the SFC assure timely exchange of information related to the overseas domiciled fund managers who manage authorised funds. Overseas fund managers without branch offices in Hong Kong must appoint Hong Kong representatives to liaise with Hong Kong investors and the SFC. Individuals who manage the funds' subscription and redemption activities in Hong Kong must also be licensed by the SFC.
How do I know if fund managers put my interests before their own?
The Fund Manager Code of Conduct states that fund managers should always put investors' interests before their own. They should execute orders on behalf of funds on the best available terms in the market and give priority to those orders over those on house accounts owned by the fund managers themselves. Failure to follow the Code of Conduct impugns a fund manager's Hong Kong registration.
What happens to a fund if its fund manager has financial problems?
A trustee / custodian, which an authorised fund must appoint, holds custody of a fund's assets. A fund manager cannot use assets in a fund to solve its own financial problems. If a fund manager is in financial trouble or not fit to continue management of the fund, the trustee of a unit trust or the directors of a mutual fund should dismiss the fund manager and reappoint another one. The SFC is immediately notified of the change and will monitor the appointment of a new fund manager.
Who can be a trustee / custodian?
The trustee / custodian must be independent of the fund management company. It can be a bank, a registered trust company or a bank or trustee company incorporated outside Hong Kong acceptable to the SFC. It requires minimum paid-up capital and reserves of HK$10 million and will be subject to on-going regulatory supervision or independent audits.
Remember: A fund's assets must be segregated from the assets of its trustee / custodian, who is also prohibited from using a fund's entrusted assets for its own benefits or debt repayments.