Hong Kong: Update on Hong Kong Exchange's guidance for listing of Chapter 21 Investment Companies

Last Updated: 22 October 2011
Article by Conrad Chan and Vencci Ho

The Hong Kong Exchange and Clearing Limited ("HKEx") recently published an updated guidance letter (HKEx-GL17-10) ("Updated Guidance Letter") to further outline HKEx's considerations for the listing of investment companies under Chapter 21 of the Hong Kong Listing Rules ("Investment Companies"), as well as its approach in assessing qualifications of directors, investment managers/advisers and the issue of conflict of interests.


  • Rule 21.04 of the Hong Kong Listing Rules provides that qualifications for listing under Chapter 8 (with a few specified exceptions) shall apply to Investment Companies.
  • Rule 21.04 also sets out certain additional conditions applicable to Investment Companies, including, among others:
    • HKEx must be satisfied (Rule 21.04(1)):
      • as to the character, experience and integrity of the directors of any investment company, its management company and/ or its investment adviser (if any) and the fitness and competence of each of them; and
      • that the executive management committee has had satisfactory experience in the professional management of investments on behalf of third party investors.
  • Other conditions include:
    • custodian or trustee acceptable to HKEx; the investment company and its management be bound by articles of association or equivalent constitutive documents etc.

New HKEx Guidance

I. Considerations for listing

In addition to the Listing Rules, HKEx will also consider the following attributes of the Investment Companies for listing:

  • its risk control and compliance measures to ensure compliance with investment objectives and policies, applicable laws, and to review and monitor its investment portfolio and risk;
  • its purpose in raising funds and rationale for listing; and
  • its process to identify and assess potential investments.

II. Qualifications of directors, investment managers/advisers (collectively, "Management")

In assessing the qualification of the Management under Rule 21.04, the following information will be considered by HKEx. This information is also required to be disclosed in the listing document:

  • their years of experience in professional management of investments;
  • the types and geographical coverage of the investments they managed;
  • the fund sizes (including investment objectives and policies) and performance during the period under their management;
  • performance indicators (e.g. net asset value of the managed funds, their absolute performance, and their relative performance compared to that of other major managed funds and relevant indexes) should be disclosed;
  • their roles and responsibilities in the present and past job positions;
  • details of their licences, academic and professional qualifications; and
  • any breaches of laws, rules and regulations in the relevant industry.

The sponsor must confirm to HKEx, with basis, the suitability of the persons proposed to be the Investment Company's Management.

HKEx had previously rejected nominees for director roles based on reasons such as limited track record, underperformance in their previous portfolios, or where the portfolio size previously managed was smaller than that of the Investment Company's.

III. Conflicts of interest

Where an executive director is also a director/senior managing member of the investment manager, or where an investment manager manages both the Investment Company's funds and other funds, it will be potentially considered a conflict of interests by HKEx. A satisfactory internal control mechanism is then expected. This includes:

  • ability of each executive director/investment manager/adviser to devote sufficient time and resources to look after the Investment Company's affairs;
  • each conflicted person must maintain the confidentiality of the information of the investment company and other funds managed by him;
  • a fair process for allocating investment opportunities between the investment company and the other funds managed by each conflicted person.

Sponsors must confirm to HKEx that the potential conflicts of interest are satisfactorily managed to ensure the smooth running of the company's affairs and the interests of shareholders are not compromised as a result.

IV. Other changes for restricted marketing cases

To ensure that the securities of Investment Companies are marketed to the professional investors but not the public, HKEx previously required a minimum board lot size of HK$100,000 and subscription size of HK$500,000. According to the Updated Guidance Letter, HKEx now generally requires the minimum board lot and subscription size to be HK$500,000.

In addition, HKEx expressly clarifies that offering document for restricted marketing cases do not require registration of prospectus.


This Updated Guidance Letter further clarifies HKEx's considerations for the listing of investment companies under Chapter 21 of the Listing Rules, as well as qualifications of directors, investment managers/investment advisers and ensures that there is internal control mechanism in place for the investment companies to deal with conflict situations.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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