Open-end Fund Company, OFC




   
                                                                                                                         

Open-end Fund Company, OFC




   
                                                                                                                         

Open-end Fund Company, OFC




   
                                                                                                                         

Open-end Fund Company, OFC

The Hong Kong government officially introduced the Open-ended Fund Company (“OFC”) structure in 2018, and further optimized the OFC structure in September 2020 after consulting the industry, aiming to attract more securities investment The fund directly adopts the main structure of Hong Kong, and conducts activities such as establishment, fundraising and management in Hong Kong.

Before the launch of OFC in Hong Kong, due to the consideration of the tax system and the flexibility of the company structure, fund founders generally chose to set up the main body of the fund in an offshore jurisdiction such as Cayman, and then appointed an investment manager in Hong Kong to manage the fund's management. operate. The easy management and tax advantages of Hong Kong OFC make it an important part of improving the type of Hong Kong funds. Together with the Limited Partnership Fund ("LPF"), they are known as the two major branches of the private equity fund industry under Hong Kong jurisdiction. . With the further integration of the Guangdong-Hong Kong-Macao Greater Bay Area, the development of Hong Kong's investment fund market is bound to provide mainland investors with more choices.

"What is an open-ended fund company?"
OFC is an investment fund structure in which a limited liability company with an indeterminate share capital is established by the fund founder. Investors invest by subscribing to the company's shares and can freely sell or redeem such shares.

OFC is divided into two categories: Private OFC and Public OFC. The procedures for setting up a private OFC are relatively simple, and the publication of its offer does not require the approval of the Hong Kong Securities and Futures Commission. The establishment and offer of a public OFC must be approved by the Hong Kong Securities and Futures Commission, and its operation must comply with the same requirements as existing unit trust funds (eg. "SFC Product Manual", and the "Unit Trust and Mutual Fund Code" in the "Unit Trust and Mutual Fund Code". Regulations).

The day-to-day operations of an OFC are handled by its board of directors, which must have at least two directors, at least one of whom is an independent director. The board of directors must delegate the investment management function to the investment manager in accordance with the investment management agreement. In addition, OFC assets must be segregated and entrusted to a custodian for safekeeping.
                                      
" Characteristics of Open-end Fund Companies "
  • Regulatory burden reduction —  The establishment and management of the OFC in Hong Kong only involves a single jurisdiction and is only regulated by the Hong Kong Securities and Futures Commission. There is no annual rerepot and no mandatory annual general meeting required.
  • Tax Incentives –  Profits from most transactions are exempt from profits tax.
  • Low management costs —  Private OFCs do not need to pay an annual fee to the Hong Kong government. Like other SFC-authorized funds, public OFCs need to pay an annual fee to the SFC. Involving only a single jurisdiction can avoid additional offshore service fees and save management time and costs compared to setting up an offshore structure.
  • Suitable for public and private funds —  Including listed and unlisted funds, hedge funds, private equity funds and closed-end funds.
  • Facilitate international distribution of funds   Foreign investors familiar with corporate structure.
  • Unrestricted investment in all asset classes by private OFCs

" Funding Scheme "
The SFC provides policy support for OFC: From May 10, 2021 to May 9, 2024, 70% of the "qualifying fees" paid by OFC to Hong Kong service providers can be subsidized, with a cap of each OFC HKD 1 million.

Each investment manager can only apply for grants for up to three open-ended fund companies. The application must be submitted to the SFC within three months of the date of the certificate of incorporation or re-registration of a private OFC (or the date of authorization of a public OFC).

"Policy to Encourage Funds to Re-register and Return to Hong Kong"
On September 30, 2021, the Hong Kong Legislative Council passed two amendment bills on the introduction of a fund re-registration mechanism, allowing existing investment funds established in other places in the form of companies or limited liability partnerships to relocate their registration and business locations to Hong Kong, and register as open respectively. Form of Funds Company (OFC) or Limited Partnership Fund (LPF).

An overseas corporate fund is still the same legal entity after it is registered as an OFC, and its relocation to Hong Kong will not damage or affect the identity or continuity of the fund at the time of its previous establishment or registration. And the contracts signed and resolutions passed before the re-registration to Hong Kong will not be affected, nor will the rights, functions, responsibilities, obligations and properties of the fund be affected. The fund company does not need to cancel the original fund, nor does it require investors to transfer their interests from the original fund to the fund operating in Hong Kong, so stamp duty is not payable. After the re-registration, these funds will be deregistered in the original place of registration and have the same rights and obligations as other newly established OFCs in Hong Kong.

The re-registration mechanism has been implemented on November 1, 2021, which means the opening of a high-speed channel for offshore funds to migrate to Hong Kong.


How can Sino-Rich Securities
 help you?







    
Open-end Fund Company, OFC

The Hong Kong government officially introduced the Open-ended Fund Company (“OFC”) structure in 2018, and further optimized the OFC structure in September 2020 after consulting the industry, aiming to attract more securities investment The fund directly adopts the main structure of Hong Kong, and conducts activities such as establishment, fundraising and management in Hong Kong.

Before the launch of OFC in Hong Kong, due to the consideration of the tax system and the flexibility of the company structure, fund founders generally chose to set up the main body of the fund in an offshore jurisdiction such as Cayman, and then appointed an investment manager in Hong Kong to manage the fund's management. operate. The easy management and tax advantages of Hong Kong OFC make it an important part of improving the type of Hong Kong funds. Together with the Limited Partnership Fund ("LPF"), they are known as the two major branches of the private equity fund industry under Hong Kong jurisdiction. . With the further integration of the Guangdong-Hong Kong-Macao Greater Bay Area, the development of Hong Kong's investment fund market is bound to provide mainland investors with more choices.

"What is an open-ended fund company?"
OFC is an investment fund structure in which a limited liability company with an indeterminate share capital is established by the fund founder. Investors invest by subscribing to the company's shares and can freely sell or redeem such shares.

OFC is divided into two categories: Private OFC and Public OFC. The procedures for setting up a private OFC are relatively simple, and the publication of its offer does not require the approval of the Hong Kong Securities and Futures Commission. The establishment and offer of a public OFC must be approved by the Hong Kong Securities and Futures Commission, and its operation must comply with the same requirements as existing unit trust funds (eg. "SFC Product Manual", and the "Unit Trust and Mutual Fund Code" in the "Unit Trust and Mutual Fund Code". Regulations).

The day-to-day operations of an OFC are handled by its board of directors, which must have at least two directors, at least one of whom is an independent director. The board of directors must delegate the investment management function to the investment manager in accordance with the investment management agreement. In addition, OFC assets must be segregated and entrusted to a custodian for safekeeping.

" Characteristics of Open-end Fund Companies "
  • Regulatory burden reduction —  The establishment and management of the OFC in Hong Kong only involves a single jurisdiction and is only regulated by the Hong Kong Securities and Futures Commission. There is no annual rerepot and no mandatory annual general meeting required.
  • Tax Incentives –  Profits from most transactions are exempt from profits tax.
  • Low management costs —  Private OFCs do not need to pay an annual fee to the Hong Kong government. Like other SFC-authorized funds, public OFCs need to pay an annual fee to the SFC. Involving only a single jurisdiction can avoid additional offshore service fees and save management time and costs compared to setting up an offshore structure.
  • Suitable for public and private funds —  Including listed and unlisted funds, hedge funds, private equity funds and closed-end funds.
  • Facilitate international distribution of funds   Foreign investors familiar with corporate structure.
  • Unrestricted investment in all asset classes by private OFCs

" Funding Scheme "
The SFC provides policy support for OFC: From May 10, 2021 to May 9, 2024, 70% of the "qualifying fees" paid by OFC to Hong Kong service providers can be subsidized, with a cap of each OFC HKD 1 million.

Each investment manager can only apply for grants for up to three open-ended fund companies. The application must be submitted to the SFC within three months of the date of the certificate of incorporation or re-registration of a private OFC (or the date of authorization of a public OFC).

"Policy to Encourage Funds to Re-register and Return to Hong Kong"
On September 30, 2021, the Hong Kong Legislative Council passed two amendment bills on the introduction of a fund re-registration mechanism, allowing existing investment funds established in other places in the form of companies or limited liability partnerships to relocate their registration and business locations to Hong Kong, and register as open respectively. Form of Funds Company (OFC) or Limited Partnership Fund (LPF).

An overseas corporate fund is still the same legal entity after it is registered as an OFC, and its relocation to Hong Kong will not damage or affect the identity or continuity of the fund at the time of its previous establishment or registration. And the contracts signed and resolutions passed before the re-registration to Hong Kong will not be affected, nor will the rights, functions, responsibilities, obligations and properties of the fund be affected. The fund company does not need to cancel the original fund, nor does it require investors to transfer their interests from the original fund to the fund operating in Hong Kong, so stamp duty is not payable. After the re-registration, these funds will be deregistered in the original place of registration and have the same rights and obligations as other newly established OFCs in Hong Kong.
The re-registration mechanism has been implemented on November 1, 2021, which means the opening of a high-speed channel for offshore funds to migrate to Hong Kong.

How can Sino-Rich Securities help you?
  • Sino-Rich acts as the custodian
Under the Open-ended Fund Companies Code, the custodian of a private OFC may be a licensed corporation or registered institution licensed or registered for Type 1 regulated activity (i.e. dealing in securities), provided that:1. Its licence or registration (as the case may be) granted under section 116(1) or section 119(1) of the ordinance is not subject to the condition of not holding client assets;2. For the custodian of a licensed corporation, it should maintain a paid-up share capital of not less than HK$10 million and liquid capital of not less than HK$3 million at all times;3. The private OFC is (and at all times is) a client of the licensed corporation or registered institution's Type 1 regulated activity business;4. There is at least one responsible officer or supervisor responsible for the overall management and supervision of its custody function;5. Independent of the investment manager.Sino-Rich is a licensed securities firm licensed by the Hong Kong Securities and Futures Commission (CE No.: AFN604), holding Type 1 (dealing in securities), Type 2 (dealing in futures contracts) and Type 4 (advising on securities), Type 5 (advising on futures contracts), Type 9 (asset management) regulated activity licenses, suitable for custodians of private OFCs.

  • Sino-Rich acts as the investment manager
An Open-ended Fund Company must have an investment manager who is responsible for managing the Open-ended Fund Company's plan properties. The investment manager: must be licensed or registered for Type 9 (asset management) regulated activity; and must be and remain a fit and proper candidate at the time of and after the registration of an OFC.

Sino-Rich is a licensed securities firm licensed by the Hong Kong Securities and Futures Commission (CE No.: AFN604), holding Type 1 (dealing in securities), Type 2 (dealing in futures contracts) and Type 4 (advising on securities), Type 5 (advising on futures contracts), Type 9 (asset management) regulated activity licenses, suitable for investment managers of private OFCs.

If you would like to know more about OFC, or are looking for a custodian to serve your private OFC, or are interested in becoming an investment manager, please contact our Head of Asset Management:
Cheung Ka Ho, Tel  +852 3107 0858 ,

How can Sino-Rich Securities help you?

  • Sino-Rich acts as the custodian
Under the Open-ended Fund Companies Code, the custodian of a private OFC may be a licensed corporation or registered institution licensed or registered for Type 1 regulated activity (i.e. dealing in securities), provided that:
1. Its licence or registration (as the case may be) granted under section 116(1) or section 119(1) of the ordinance is not subject to the condition of not holding client assets;
2. For the custodian of a licensed corporation, it should maintain a paid-up share capital of not less than HK$10 million and liquid capital of not less than HK$3 million at all times;
3. The private OFC is (and at all times is) a client of the licensed corporation or registered institution's Type 1 regulated activity business;
4. There is at least one responsible officer or supervisor responsible for the overall management and supervision of its custody function;
5. Independent of the investment manager.
Sino-Rich is a licensed securities firm licensed by the Hong Kong Securities and Futures Commission (CE No.: AFN604), holding Type 1 (dealing in securities), Type 2 (dealing in futures contracts) and Type 4 (advising on securities), Type 5 (advising on futures contracts), Type 9 (asset management) regulated activity licenses, suitable for custodians of private OFCs.

  • Sino-Rich acts as the investment manager
An Open-ended Fund Company must have an investment manager who is responsible for managing the Open-ended Fund Company's plan properties. The investment manager: must be licensed or registered for Type 9 (asset management) regulated activity; and must be and remain a fit and proper candidate at the time of and after the registration of an OFC.

Sino-Rich is a licensed securities firm licensed by the Hong Kong Securities and Futures Commission (CE No.: AFN604), holding Type 1 (dealing in securities), Type 2 (dealing in futures contracts) and Type 4 (advising on securities), Type 5 (advising on futures contracts), Type 9 (asset management) regulated activity licenses, suitable for investment managers of private OFCs.

If you would like to know more about OFC, or are looking for a custodian to serve your private OFC, or are interested in becoming an investment manager, please contact our Head of Asset Management:
Cheung Ka Ho, Tel +852 3107 0858,
Email  kaho.cheung@sinorichhk.com .