SFC (1) Releases the Guidelines on Hedge Funds Reporting Requirements (2) Announces the Authorization of Hedge Funds and (3) Issues a Circular to Registered Persons Regarding the Marketing of Hedge Funds

The SFC today releases the Guidelines on Hedge Funds Reporting Requirements and the related Consultation Conclusions.

The Guidelines set out the additional guidance regarding hedge funds’ on-going reporting obligations.   It will be incorporated into the Code on Unit Trusts and Mutual Funds under Chapter 8.7. 

A proper balance

The month-long public consultation on the Guidelines ended in early October.  The SFC received 18 submissions from different sectors of the market, including fund managers, fund service providers, fund industry associations, law firms and accounting firms. 

An overwhelming majority of respondents supported the initiatives taken by the SFC to enhance the transparency of hedge funds offered to the retail public in Hong Kong.   

The  Guidelines represent a set of minimum disclosure standards.   The SFC recognizes that these minimum disclosure requirements are by no means exhaustive and strongly encourages additional disclosure by each individual hedge fund if it is deemed appropriate and informative to investors, taking into account the objectives and strategies of the scheme.

Alexa Lam, SFC’s Executive Director of Intermediaries and Investment Products, said: “Hong Kong is the first jurisdiction in the world to have a set of hedge funds specific reporting requirements tailor-made for retail investors. In order to ensure proper protection of retail investor interests and promote public confidence, we believe it is important that timely, meaningful and useful information is provided to investors.”

“We have actively engaged the industry in finalizing the Guidelines.  With industry input, we believe it strikes a proper balance between investor protection and market development.  We will continue to maintain a close dialogue with the industry and seek ways to enable Hong Kong to continue to grow as Asia’s premier fund management center,” Mrs Lam added.

The Guidelines will come into effect on 20 December 2002. 

Fund authorizations

Hong Kong is one of the world’s first jurisdictions to have retail hedge funds.  To date, the SFC has authorized three hedge funds for sale to the public.  Two of them are single hedge funds.  The third is a fund-of-hedge-funds.  More hedge funds will be authorized in the coming months subject to their compliance with SFC requirements.  The exact timing of the launch of these products, however, will be a commercial decision of the respective management companies.

Investors are reminded that hedge funds are not a “sure-win” product and the risks inherent in hedge funds may be different from those in traditional funds. Investors should consider their own financial circumstances and the suitability of hedge funds as part of their overall investment portfolio.

A new series of investor education materials on hedge funds is also being published by the SFC (note 1).

Circular on fund marketing

The SFC has today also issued a Circular to Registered Persons Regarding the Marketing of Hedge Funds.  Given the authorization of hedge funds, the SFC considers it appropriate to remind financial intermediaries of their obligations to assess whether hedge funds are suitable for their clients.   

As a collaborative effort between the Hong Kong Monetary Authority and the SFC, the HKMA has agreed to issue a Circular to its regulatees to remind them of the SFC requirements in this regard.  The SFC and the HKMA are working closely to ensure an open market with a level playing field for all financial intermediaries, including banks and financial advisers, in the marketing of hedge funds. 

Copies of the Guidelines, the Consultation Conclusions, and the Circular are available at the SFC Office, on the SFC website (www.hksfc.org.hk) and the FinNet communication network.  

Ends

Notes to Editor:
1. A separate press release entitled “SFC Steps Up Investor Education on Hedge Funds” is issued today by the SFC. It is also accessible on the SFC website.