Member Article

In our last newsletter we provided a summary of the Securities & Futures Commission’s (“SFC”) proposed amendments to the SFC’s guidelines on hedge funds. The SFC has now concluded its consultations and the hedge fund guidelines have been amended. As proposed, in assessing compliance of the personnel of investment managers with the requirement for five years relevant experience, a wider range of hedge fund experience will now be acceptable. The requirement for key personnel to possess specific public funds experience (as set out in Chapter 5.5(a) of the Code) may be satisfied if the management company on a firm wide basis is able to demonstrate that it possesses the requisite experience and resources to administer public funds. This, in effect, means that large institutional fund managers will find it easier to have a hedge fund authorised by the SFC than core hedge fund operators as they will be more likely to satisfy this requirement by virtue of the public funds management undertaken by other divisions of the institutional fund manager’s organisation. Increased levels of disclosure will be required in the fund’s offering document relating to the risk management operations of the scheme, management of conflicts of interest, the relationship between the prime broker and the fund, ring-fencing arrangements for umbrella structures, the on-going monitoring of the scheme’s investment and asset allocation process and the performance of the scheme, the ongoing monitoring of the standards of the services provided by key service provides and the replacement process for such service providers. The proposals to reduce the minimum investment requirement for a single strategy hedge fund from US$50,000 to US$30,000 and to permit an increase in the value of the assets of a hedge fund that may be charged to a prime broker have been dropped. The new hedge fund guidelines became effective at the end of September 2005.