Category Archives: Updates & Publications

Focus on Hong Kong Asset Management

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Hong Kong has a well-established asset management and funds industry that has been successful under an open architecture framework. This spans from being accepting of fund managers’ overseas qualifications and experiences of different markets to set up in Hong Kong, to being domicile-neutral on the funds that may be offered in Hong Kong on a private placement basis or which may be approved for retail public offer. It is this backdrop that has developed Hong Kong into a financial centre where many asset management firms are set up by international groups and in recent years Mainland China fund houses.

Recently the status quo has been shaken up amidst efforts to maintain and enhance Hong Kong’s competitiveness as an international centre for funds, and also as it seeks to further capitalise and stay relevant as the gateway for Mainland China of the People’s Republic. There are also developments in the context and environment of international regulatory and fiscal cooperation. In this article written as a synopsis, we focus on the key attributes and changes that are interesting for asset managers to consider Hong Kong under their global strategy.

Focus-on-Hong-Kong-Asset-ManagementDownload

This article first appeared in the Corporate Livewire “Expert Guide – Investment Funds 2019” (with necessary updates since publication). Vivien Teu & Co LLP is pleased to have been invited by Corporate Livewire to contribute the Hong Kong chapter. Access the full guide at Corporate Livewire (registration required): http://www.corporatelivewire.com/guide.html?id=investment-funds-2019

HKMA on Green Finance and UNPRI

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Earlier this week, the Hong Kong Monetary Authority (HKMA) issued a press release on key measures that the HKMA is adopting to support and promote sustainable and green finance in Hong Kong (https://www.hkma.gov.hk/eng/key-information/press-releases/2019/20190507-4.shtml)

In particular, as an asset owner and manager of the Exchange Fund, HKMA is placing emphasis on responsible investment, including incorporating ESG factors in HKMA’s credit risk analysis on bonds and to further grow the Exchange Fund’s green bond portfolio, through direct investment or investment in green bond funds. 

HKMA is also requiring external managers of the Hong Kong equity portfolios to comply with the Principles of Responsible Ownership promulgated by the Securities and Futures Commission in 2016, and intends to participate in ESG-themed public equities investments through external managers in passive or active mandates targeting ESG benchmark index.

According to recent news, HKMA may soon be the second central bank to sign up to the Principles for Responsible Investment (UNPRI) (the first being Dutch central bank).

Offshore Economic Substance Requirements

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From 1 January 2019, various offshore jurisdictions have enacted economic substance (ES) requirements, although there are differences and local nuances in each of the respective jurisdictions involved. Generally speaking, the introduction of ES requirements in such traditional ‘no or nominal tax jurisdictions’ has raised concerns amongst individuals or corporations who have been using offshore companies, whether in the conduct of a trade or business, funds or investment management, family-owned businesses or trust structures using offshore companies for the holding of investments or real properties, multinational groups with an offshore listing vehicle and/or holding companies, and so forth. As such, the impact of the ES requirements on the use of entities in such no or nominal tax jurisdictions needs to be assessed, immediately and on an ongoing basis.

In this legal update we provide an outline of the broad global context and the general ES requirements for information and discussion, while specific details of the ES requirements that may apply to specific entities in specific offshore jurisdictions should be considered in consultation together with lawyers of the particular jurisdictions in question.

Specifically, we consider the types of entities and activities that may be impacted, the potential implications and options that may be available to comply or address the ES requirements, including whether companies may “relocate” or obtain tax residency in another jurisdiction such as Hong Kong, which we suggest careful analysis should be undertaken in review.

Offshore Economic Substance RequirementsDownload

To view a Chinese version of this update:

Offshore-Economic-Substance-Requirements-ChiDownload

“Green” or “ESG” Funds? Hong Kong Regulator Issues Guidelines

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An evolutionary force has built momentum in recent years within the global investment management industry and investors community – a greater focus on the power of capital for good and purpose. Beyond “green investing” to fight climate change, it goes from sustainable investing to ethical or impact investing, encompassing objectives to embrace broader responsibilities that take into account environmental, social and corporate governance (ESG) factors.

In the broader context, the investment industry and capital markets are responding to governmental policies and investors demand for capital allocation with these objectives. Yet, there are varying degrees and approaches to addressing ESG factors, with limited regulatory requirements that provide specific framework. What counts as green, or what specific environmental, social or governance issues are being addressed, and how?

With an increase in the offering of investment products or services with proposed green or ESG investment objectives or policies, there is an issue of clarity or sufficiency of disclosures. This makes it difficult for investors to compare and contrast the available choices of products – what exactly are the products purported to be or to what extent are the investment strategies or investment portfolios actually “green” or “ESG” compliant.

On 11 April 2019, the Hong Kong Securities and Futures Commission (“SFC”) issued its Circular to management companies of SFC-authorised unit trusts and mutual funds to address “Green” or “ESG” funds (Circular). The aim is to enhance disclosure comparability between similar types of SFC-authorised Green or ESG funds and their transparency and visibility in order to facilitate investors making informed investment decisions in this evolving investment areas.

The Circular would serve to require and obligate investment managers offering investment products with an expressed green or ESG focus or who intend to do so to carefully consider whether their fund would and is able to comply within the SFC’s expected framework for Green or ESG funds and become designated as such.  An investment manager of Green or ESG funds would also be expected to have a proper and robust investment selection process and assessment criteria in line with its stated investment focus and green or ESG principles, and may seek to obtain a third party certification or fund labeling or would rely on its self-confirmation.

Our legal update outlines the background and context of the growth of Green or ESG funds, Hong Kong’s efforts and SFC’s issued framework for such funds as set out in the new Circular:

Hong Kong Guidelines on Green or ESG FundsDownload

 

家族财富管理

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张慧雯律师事务所很高兴成为“中国商法”杂志授予的《2019年中国商法卓越律所大奖》的获奖者。

本所获奖领域为： 家族财富管理 －国际所。

“中国商法”卓越律所大奖是根据中国境内外企业法务、管理决策者、法律专业人士的投票及推荐，以及对获奖事务所的显著成就进行评估而授予的。

由于中国和亚洲地区的财富和超高净值以及高净值家庭的数量大幅增加，近年来对家族财富管理的专业人士和专业服务的需求很大。 不断增长的需求，也带来很多家族办公室的设立。

取决于每个家族的独特情况，家族办公室的功能以及家族办公室的设计、形式和架构可就个别家庭而异。 包括家族企业和投资之需求，为下一代策划资产转移的遗产和传承计划等，可能有很大不同的考虑因素和方式。

在本所获奖之际，我们再次分享本所刊物，含本所深入分析家族财富管理的要素和相关问题。 结合本所就证券及私募股权投资、企业、基金、信托安排和税务等方面的专长，我们期待与更多合作伙伴合作，为行业做出贡献和塑造，以达满足客户需求。

私人财富管理及家族办公室（2019）Download

Family Wealth Management

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Vivien Teu & Co LLP is delighted to be a recipient of the China Business Law Awards 2019 conferred by the China Business Law Journal.

The firm is recognised as an award winner in the category of Family Wealth Management – International Law Firm.

The China Business Law Awards of China Business Law Journal are conferred based on votes and recommendations from corporate counsel, senior managers and legal professionals around the world, and an evaluation of the notable achievements of winning firms.

Due to tremendous increase in wealth and numbers of ultra-high-net-worths and high-net-worths families in China and broader Asia, there has in recent years been great demand for professionals and specific expertise in the family wealth management sector to service the growing needs, along with more family offices being established.

The functions of a family office and the design, form and structure for family wealth management can vary significantly from one family to another depending on the unique circumstances of each family. Relevant considerations including succession planning for the family business and investments, leaving a legacy and succession planning for generational transfer of assets can be quite different.

With our award win, we are happy to share again our publication that takes a deep dive into analysing the elements and relevant issues for family wealth management. With our practice focus across securities and private equity investments, corporate, funds, trusts and tax, we look forward to working with more partners in contributing and shaping the sector to meet client needs.

Private Wealth Management & Family OfficesDownload

Revised Code on Unit Trusts and Mutual Funds

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On 6 December 2018 the Hong Kong Securities and Futures Commission (“SFC”) issued the consultation conclusions (“the Consultation Conclusions”) on proposed amendments to the Code on Unit Trusts and Mutual Funds, governing investments funds authorised by the SFC for offer to the public in Hong Kong. The revised Code on Unit Trusts and Mutual Funds is now in force with effect from 1 January 2019 with a transition period of 12 months for existing SFC authorised funds and operators.

In this publication, we look into the background of the amendments and the extent of such changes:

Revised Code on Unit Trusts and Mutual Funds (Feb 2019)Download

Update on Fund Structures

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Fund sponsors now have new legal forms to consider when structuring investment funds. This update highlights recent developments of note.

Cayman Islands Limited Liability Company

A long anticipated Cayman Islands Limited Liability Companies Law, 2016 came into force 8 July 2016.  The registration of a limited liability company (“LLC”) will commence 13 July 2018.  The LLC is an additional structure available in Cayman Islands which is closely aligned with that of a Delaware limited liability company, with certain modifications. For example, the Delaware limited liability structure provides for legal segregation of assets and liabilities, which is similar to the structure of a Cayman Islands segregated portfolio company, but not the LLC.

Similar to the Cayman Islands exempted company, the LLC is a body corporate with a separate legal personality, except that it also encompasses the flexibility of an exempted limited partnership (“ELP”).  It does not have share capital and the economic interests of members of an LLC is represented by way of capital account, which allows for different profits and loss allocation and fees arrangement amongst members.  In addition, the LLC may be governed by some or all of its members or appointed non-member managers, unlike an exempted company which is managed by the board of directors, or an ELP which is managed by the general partner.

Considering the flexibility, the potential usage of the LLC structure could be broad.  However we envisage that it may initially be utilized primarily by US-based managers or for US investors, due to administration efficiency and investors familiarity, adopting similar structures both onshore and offshore.  The LLC structure may be adopted in place of Delaware limited liability company.  The Asian market may move slower in adopting the LLC structure, but the LLC can become popular quickly, for the reasons noted above, as an alternative structure for private equity funds which traditionally adopts the ELP structure. The latter requires the appointment of a general partner and does not possess a separate legal personality.  The LLC structure could be well-suited for private equity funds and other closed-end funds where the afforded flexibilities would meet the varied commercial needs of fund promoters and partners.

Cayman Islands exempted companies may be converted into LLC structure upon complying with relevant procedures and filing requirements in the Cayman Islands.

Hong Kong open-ended fund company

Another structure which has been introduced as a result of market demand is the Hong Kong open-ended fund company (the “OFC”).  The Hong Kong Government published in the Gazette on 10 June 2016 the Securities and Futures (Amendment) Ordinance 2016 (the “Amendment Ordinance”), which introduces a new OFC structure in Hong Kong.  The main provisions of the Amendment Ordinance will commence operations on a date to be appointed by the Secretary for Financial Services and the Treasury.  It is anticipated that the OFC will also be subject to further implementing rules to be issued by the Hong Kong Securities and Futures Commission (SFC).

An OFC is an open-ended collective investment scheme set up in the form of a company, but with the flexibility to create and cancel shares for shareholders’ subscription and redemption in the funds, which is currently not possible for Hong Kong companies under the Companies Ordinance. Also, OFCs will not be confined by restrictions on distribution out of share capital under the Companies Ordinance. Instead, OFCs may distribute out of share capital subject to solvency and disclosure requirements.

Some of the other key features of the OFC are that a proposed OFC needs to be registered with the SFC before incorporation. The SFC will be the main regulatory of the OFC.  The OFC, apart from a board of individual directors of at least 2, must delegate asset management duties to an investment manager which is licensed by the SFC to conduct type 9 (asset management) regulated activity.  It must also appoint a custodian in respect of its assets.

Publicly-offered OFCs authorized by the SFC will be exempted from Hong Kong profits tax.  It is expected that the OFC will provide an alternative structure for retail funds in Hong Kong, particularly those applying for retail distribution in China under the Mutual Recognition of Funds scheme.  Prior to the OFC, the Hong Kong unit trust is the only legal form available for Hong Kong domiciled funds.

Along with the requirement that an OFC must appoint a Hong Kong licensed investment manager, the new legal form is intended to enhance Hong Kong’s position as an asset management and funds centre.  However, privately-offered OFCs need to have its central management and control outside of Hong Kong in order to be exempt of Hong Kong profits tax (ie. non-resident) and subject to certain conditions.  Therefore, the private funds industry may be slow in adopting this structure.  We anticipate that the industry will continue to lobby for more favorable tax position where OFC structure may be profit tax exempt, irrespective of where it is centrally managed and controlled.

This update is provided for general information only and is not intended as legal advice in any specific case.  

Please contact Vivien Teu (vivien.teu@vteu.co) for any enquiry or assistance on the subject matter.

Establishing and Managing a private investment fund from Hong Kong (2017)Download