News

Hong Kong SFC Clarifies Listing Requirements for Closed-Ended Funds

Cooley alert
February 19, 2025

On February 17, 2025, the Securities and Futures Commission (SFC) of Hong Kong issued a circular specifying regulatory requirements for the listing of closed-ended alternative investment funds (listed alternative funds) on the Stock Exchange of Hong Kong Limited (SEHK).

Below is an overview of the key SFC regulatory requirements on listed alternative funds.

Requirements for the fund

 

SFC requirements

Our interpretation

Investment target

Mainly private, illiquid assets in a well-diversified portfolio, comprising assets with varying investment life cycles, where appropriate

The rules are not targeting to list single-asset project funds, regardless of the actual scale of such funds

Fund income streams

Depending on investment strategies, such fund should preferably be able to generate regular income on a continuous basis

Closed-ended funds with stable income streams over a certain period of time will likely be favored for listing purposes over those with more volatility/less predictability in their revenue model (e.g., traditional venture capital funds)

Listing thresholds

The fund should be sizeable, with an expected market capitalization of US$100 million at the time of listing

 

Generally, the public shall hold at least 25% of the total units or shares of the fund at all times

At least a quarter of the fund’s interests need to be offered to and at all times held by the public, which could fundamentally change the investor base and governance mechanism of a fund

Borrowing cap

30% of the fund’s net asset value (NAV)

Regulatory borrowing restriction regardless of the type and investment strategies of the fund

Fund of funds (FoF)

For FoFs, there is a 20% investment limit for each underlying target fund, and such underlying target fund may not be investing in other funds

Regulatory single-deal limit (applies to FoF investments)

Mandatory reporting

The fund’s NAV is expected to be calculated and published on the fund’s website at least on a quarterly basis

Performance results of the fund will be made public

Requirements for the fund manager

The relevant fund manager should have sizeable assets under management of at least US$100 million, invested in relevant alternative assets on a groupwide basis. The SFC also will consider whether such fund manager:

  • Has the requisite competence and experience on a groupwide basis in managing a publicly listed vehicle and complying with applicable regulatory requirements, or able to demonstrate the ability to do so.
  • Has a good track record of regulatory compliance.

The management company of an SFC-authorized listed alternative fund also is expected to carry out extensive investor education before launching the fund in Hong Kong.

Conclusion

This new SFC guidance is consistent with the Hong Kong government’s policy to broaden the scope of private equity fund offerings in Hong Kong. While these new rules clarify certain requirements, investment managers need to be mindful that one of the key criteria for these offerings is that the fund should preferably be able to generate regular income streams, which means that the fund’s investment strategy is critical to its listing application.

This content is provided for general informational purposes only, and your access or use of the content does not create an attorney-client relationship between you or your organization and Cooley LLP, Cooley (UK) LLP, or any other affiliated practice or entity (collectively referred to as “Cooley”). By accessing this content, you agree that the information provided does not constitute legal or other professional advice. This content is not a substitute for obtaining legal advice from a qualified attorney licensed in your jurisdiction and you should not act or refrain from acting based on this content. This content may be changed without notice. It is not guaranteed to be complete, correct or up to date, and it may not reflect the most current legal developments. Prior results do not guarantee a similar outcome. Do not send any confidential information to Cooley, as we do not have any duty to keep any information you provide to us confidential. This content may be considered Attorney Advertising and is subject to our legal notices.