Private equity investment and hedge fund investment
Hong Kong is widely recognised as the leading fund management centre in Asia with the largest concentration of fund managers. Our private equity investment practice focuses on providing legal and regulatory services relating to private equity and venture capital funds for private and institutional investors.
We have wide experience in assisting private equity groups by pulling together our expertise on investment funds, licensing, corporate compliance, mergers and acquisitions and corporate finance. Working closely with offshore legal advisers and fund managers, we have been involved in the establishment of numerous private equity investment funds in various offshore jurisdictions.
We also advise unique and flexible hedge funds which often cover a broader spectrum of strategies in relation to the usage of leverage and derivatives. In addition to advising on fund formation and management, we advise on other related aspects of including risk controls, achieving transparency of the management company’s operation through appropriate offering document disclosure, due diligence and investor protection.
Against a background of fast changing financial markets, we keep informed of the most recent international regulatory and market developments relevant to hedge fund investment. We often work closely with highly professional hedge fund investment managers as well as sophisticated hedge fund investment management teams in response to market developments. We also have close relationships with a number of prime brokers and hedge fund investment administrators.
‘QFII’ stands for qualified foreign institutional investors. In 2003, China permitted qualified foreign institutional investors (“QFII”) to invest in listed domestic securities denominated in local currency, subject to a quota approved by The State Administration of Foreign Exchange (“SAFE”), China’s foreign exchange controller. The QFII programme is the certification system which allows licensed professional foreign investors to trade RMB denominated securities in China’s mainland stock exchanges by converting foreign currency to RMB within the quota obtained from relevant authorities.
The total investment quota available for the QFII Program was US$10 billion initially, and was increased to US$30 billion in 2007. In April 2012, with the approval of State Council, China Securities Regulatory Commission (“CSRC”), the People’s Bank of China (“PBOC”) and SAFE, the QFII’s investment quota was approved to be increased by US$50 billion to a total of US$80 billion.
By June 2012, 172 foreign institutions were granted QFII licenses, which include 23 commercial banks, 13 securities companies, 96 asset management companies, 11 insurance companies, and 29 other institutions.
The Chinese government’s objectives of the QFII programme are to enrich the investment structure of the domestic capital market, promote the quality of listed companies, enhance the internationalisation of the domestic capital market, and raise general awareness of the economic and social development in China around the globe.
Pursuant to “Regulation on Domestic Securities Investment by Qualified Foreign Institutional Investor”, to qualify as a QFII, the candidate must:
- have stable finances, good credibility and meet the minimum assets requirements set by CSRC;
- meet the requirements set by the authority in its own country or area on the number of staff;
- have a healthy governing structure and a complete internal control system, and have received no significant punishment or sanction in the last 3 years;
- have a complete legal and supervision system in the candidate’s home country which has signed a Memorandum of Understanding with CSRC, and maintained effective supervision and control; and
- meet other requirements set by CSRC based on prudence.
The scope of investments under the QFII programme include:
- China A-shares;
- Listed bonds and warranties;
- Inter-bank bond;
- Private placement bonds of small-and-medium sized enterprises; and
- Stock index futures.
Notwithstanding the above, a QFII is prohibited from holding more than 20 percent of its QFII quota in cash or cash equivalents. Further QFIIs may hold up to an aggregate of 30 percent of the outstanding China A-shares of a listed Chinese company, subject to the condition that a single QFII shareholder may hold no more than 10 percent of the outstanding China A-shares issued by a listed Chinese company.