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The Hong Kong Open-Ended Fund Company
The Hong Kong Open-Ended Fund Company
An OFC is an open-ended fund in corporate form domiciled in Hong Kong. Although established in corporate form, shares in the OFC may be created or cancelled in order to meet shareholder subscription and redemption requests. This flexibility is not possible for conventional companies incorporated under the Hong Kong Companies Ordinance (Cap. 622).
An OFC can be established as a Private OFC or Public OFC.
A private OFC means an OFC which is not authorised by the Securities and Futures Commission (SFC) and can only be offered to “professional investors” in Hong Kong.
A public OFC is an OFC which has been authorised by the SFC in Hong Kong and can be offered to the public in Hong Kong.
An OFC can be structured as a single fund or alternatively it may be structured to have multiple sub-funds (i.e. an umbrella fund), each of which will operate as a “protected cell” which means that the assets and liabilities of each sub-fund belong only to that specific sub-fund and are not available to creditors of another sub-fund in the event of the respective sub-fund’s insolvency. An OFC that is structured as an umbrella fund offers a great deal of flexibility to investment managers as each sub-fund can adopt different investment objectives and strategies.
The application for the establishment of an OFC in Hong Kong is submitted to the SFC for approval. Once the SFC has approved the application, the SFC will send the incorporation documents to the Companies Registry for incorporation. Although the incorporation documents are sent to the Companies Registry, the OFC is incorporated under Part IVA of the Securities and Futures Ordinance (Cap. 571).
The SFC have indicated that they aim to process an application for the establishment of a private OFC within one (1) month from the date that they take up the application (i.e. from the time that all the required documents are sent to and accepted by the SFC) and based on our experience this is accurate.
Please note that the SFC have indicated that they aim to process an application for a public OFC in 1 – 3 months from the date that they take up the application (i.e. from the time that all the required documents are sent to and accepted by the SFC).
Recent developments of the OFC – the Budget Speech 2021/2022
The Hong Kong Financial Secretary in the 2021/2022 budget speech announced subsidies for the establishment of Hong Kong OFCs and the re-domiciliation of overseas corporate funds to Hong Kong.
It was announced that the Hong Kong Government will provide subsidies to cover 70% of the expenses paid to local professional service providers for OFCs set up in or re-domiciled to Hong Kong in the upcoming three years commencing on 10 May 2021, subject to a cap of HK$1 million per OFC and three (3) OFCs per investment manager. For further details of these subsidies, please see our newsletter Hong Kong Government subsidises establishment of Hong Kong open-ended fund companies and real estate investment trusts.
Whilst there is currently no statutory re-domiciliation mechanism for an overseas corporate fund to re-domicile to Hong Kong as an OFC, in the SFC’s Consultation Conclusions on the OFC regime issued in September 2020, the SFC stated that under the proposed re-domiciliation mechanism, an overseas corporate fund can generally be re-domiciled to Hong Kong as an OFC where it satisfies the key requirements for the registration of an OFC currently applicable to newly established OFCs under the SFO and the OFC Rules. These are basic requirements such as the appointment of a Type 9 investment manager, a custodian and directors who fulfil the eligibility requirements under the SFO, Securities and Futures (Open-ended Fund Companies) Rules and the Code on Open-Ended Fund Companies. These proposals are also included in the Legislative Council Panel on Financial Affairs’ paper on the “Re-domiciliation mechanism for Foreign Funds”. The Legislative Council Panel on Financial Affairs targets to submit the necessary legislative proposal to the Legislative Council in the second quarter of this year.
For more information on Hong Kong OFCs please see our note on Establishing Investment Funds in Hong Kong.