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Structuring offshore funds

Charltons has significant experience in advising fund managers and promoters on the domicile, structuring and establishment of offshore investment funds in a variety of jurisdictions including the Cayman Islands, the British Virgin Islands and Bermuda. Our lawyers provide an insightful and highly personalised service, delivering high impact, smart and practical advice. We advise on all forms of fund vehicles, including limited liability companies, umbrella funds, protected cell or segregated portfolio companies, limited liability partnerships and unit trusts. We also advise on a variety of fund structures, including open-ended and closed-end funds, master / feeder structures, fund of funds and hedge funds. Charltons has worked on funds across the full spectrum of asset classes, including listed stocks, fixed income and derivative securities, property, natural resources, private equity, venture capital, and distressed debt. We have also advised on a range of fund strategies including long / short, arbitrage and socially responsible investing.

For offshore funds being sold into the Hong Kong market, we will advise on the applicable regulatory framework and suggest structures, selling restrictions and other solutions that will enable funds and fund managers to avoid SFO authorisation and prospectus registration. In the case of retail and other non-exempt funds, we will assist with the application for authorisation of the fund in Hong Kong under the SFO. We have an in-depth understanding of the key legal and commercial points in the capital-raising process and have considerable experience in advising on development of fund terms and negotiations with anchor investors. We will prepare information memoranda and subscription agreements, draft and negotiate the investment management, custodian, administration and other service agreements, and prepare corporate resolutions and other launch documents. We will also engage and instruct offshore counsel and coordinate multi-jurisdictional legal advice to offer a single point of contact and integrated legal solutions to the client.

Charltons has experience with structuring offshore funds and other related offshore funds issues, and can coordinate multi-jurisdictional legal advice.

 

Recognition of Foreign Funds

Funds that are established in a “Recognised Jurisdiction Scheme” (RJS) jurisdiction are deemed to have complied in substance with the core investment restrictions, operational and structural requirements under the Code on Unit Trust and Mutual Funds. The RJS concept applies only to Chapter 7 funds which are straightforward equity/bond funds. It does not apply to Chapter 8 specialized funds such as unit portfolio management funds (i.e. funds of funds), money market/cash management funds, warrant funds, futures and options funds, guaranteed funds, index funds, hedge funds, index tracking ETFs, structured funds or funds that invest in financial derivative instruments. This list of RJS jurisdictions is set out on the SFC’s website and the current list is reproduced set out below:

Jurisdiction Applicable Law Fund Type
Australia Corporations Act 2001 Managed investment schemes
France French Financial and Monetary Code (FFMC) and Réglement Général de l’Autorité des Marchés Financiers Livre (RGAMF) i.e. French regulatory authority’s general regulation Undertaking for Collective Investments in Transferable Securities (UCITS)
Germany German Investment Act of 15 December 2003, last amended by Art. 13 of the law of 30 July 2009 Securities mutual funds (UCITS), complying with EU Directive 85/611/EEC as amended
Guernsey Protection of Investors Law 1987 Class A Schemes
Ireland European Communities (UCITS) Regulations 2003 (as amended) Unit Trusts, Investment Companies, Common Contractual Funds
Isle of Man Collective Investment Schemes Act 2008 Section 2, Authorised Schemes
Jersey Collective Investment Funds (Recognised Funds) Rules (Jersey) Order 2003 Article 14.02, Recognised Funds
Luxembourg Law of 20 December 2002 on Undertakings for Collective Investments Part I schemes
Malaysia Capital Market and Services Act 2007 Islamic Collective Investment Schemes
Taiwan Securities Investment Trust and Consulting Act Exchange-traded index tracking funds
United Kingdom Financial Services and Markets Act 2000 Section 243 schemes
United States of America Investment Company Act 1940, as amended Registered investment companies

Funds established in RJS Jurisdictions are still however required to satisfy the SFC as to the eligibility of the fund manager and its trustee or custodian. They must also comply with the UT Codes’ disclosure and post-authorisation obligations.

Overseas Retail Funds and Eligibility of an Overseas Fund Manager

An overseas fund manager of an SFC-authorised retail fund must be licensed or registered with, and supervised by, a securities regulator in an Acceptable Inspection Regime jurisdiction (AIR Jurisdiction). The list of AIR Jurisdictions is set out on the SFC’s website and currently includes Australia, France, Germany, Ireland, Luxembourg, Malaysia (in respect of Islamic funds only), Taiwan (in respect of index-tracking ETFs), the United Kingdom and the United States. Where an overseas fund manager delegates its investment management functions (e.g. to an investment adviser), the entity to whom those functions are delegated should also be licensed or registered in an AIR Jurisdiction. The SFC will however allow a fund manager which is licensed by the SFC or subject to regulatory supervision in an AIR Jurisdiction to delegate their investment management functions to its affiliate in a non-AIR Jurisdiction (Non-AIR Jurisdiction) provided that its guidelines for accepting Non-AIR Delegation (Available on the SFC’s website at http://www.sfc.hk/edistributionWeb/gateway/EN/circular/openFile?refNo=H475)  are complied with.

The SFC has already authorised various funds with Non-AIR Delegation to affiliates in jurisdictions such as Belgium, Japan, Netherlands and Singapore. Funds wishing to delegate investment management functions to a Non-AIR Jurisdiction should approach the SFC. A checklist of the additional documents and information which must be submitted to the SFC in respect of an application for authorisation of delegation of investment management functions to a Non-AIR Jurisdiction affiliate is set out on the SFC website (“Information/documents to be submitted to the SFC for delegation of investment management functions to non-AIR affiliates” at http://www.sfc.hk/edistributionWeb/gateway/EN/circular/openFile?refNo=H588)

Charltons has experience with structuring offshore funds and other related offshore funds issues, and can coordinate multi-jurisdictional legal advice.

Structuring offshore funds

Multi-jurisdictional legal advice

Offshore funds

Multi-jurisdictional legal advice in Hong Kong

Hong Kong offshore funds

Legal advice for structuring offshore funds

Legal advice for Hong Kong fund managers

Hong Kong Securities and Futures Ordinance SFO authorisation

Offshore funds sold into Hong Kong market

Recognition of foreign funds

Recognised Jurisdiction Scheme RJS
Hong Kong Code on Unit Trust and Mutual Funds chapter 7
Acceptable Inspection Regime jurisdiction AIR Jurisdiction
Non-AIR Jurisdiction
Multi-jurisdictional banking
Offshore fund rules
Mutual fund structure