Delegation of Investment Management Functions

On 18 October 2007, the Securities and Futures Commission (SFC) issued a circular which allows delegation of investment management functions by managers of authorised funds to affiliates not based in an Acceptable Inspection Regime (AIR), subject to certain requirements being met.

Previously the fund management company of an SFC authorised fund, and all of its delegates with investment discretion, had to be based in Hong Kong or an AIR. As the list of AIR includes only Australia, France, Germany, Ireland, Luxembourg, the U.K. and the U.S., this made it difficult to have SFC authorised funds managed by managers in any non-AIR countries, which had caused problems for groups with investment management hubs in regions such as Japan, Singapore, Canada, Latin America and many European jurisdictions.

The SFC has now issued a checklist of the additional documents and information to be submitted to the SFC in respect of an application for authorisation of delegation to a non-AIR affiliate. The main points to be noted are as follows:

• Requirement for an affiliate relationship between the management company and the non-AIR delegated investment firm
• Information on how the delegated investment firm will be supervised (a monitoring plan)
• Undertakings to the SFC from the management company are to be given to the effect that:
  • It will remain responsible for the activities of the delegate;
  • It will report to the SFC any breaches of laws administered by the principal regulator of the delegate;
  • It will make available for inspection relevant transaction records; give the SFC access to the delegate’s personnel in case of enquiries; and give access to the books and records of the fund in case of inspection by the SFC with such cost to be borne by the management company.
• Undertaking from the delegate to make the appropriate arrangements to enable the management company to carry out its duties as summarised above.

The requirement for an affiliate relationship between the management company and the non- AIR delegated investment firm limits the usefulness of the new provisions for groups with multi-manager planforms for third party managers as delegation to non-affiliates of the management company will only be considered on a case- by- case and exceptional basis. However, the circular will be welcomed by large international groups.

DEACONS FINANCIAL SERVICES SEMINAR

The next seminar in our 2007 Financial Services Series will be held on Friday, 23 November 2007 in our Hong Kong Office. The topic is Private Placements. Please make your reservation by Friday, 9 November 2007.

DEACONS AT THE ANNUAL INTERNATIONAL BAR ASSOCIATION (IBA) CONFERENCE IN SINGAPORE

On 15 October 2007, Rory Gallaher of the Financial Services Practice Group chaired a panel at the IBA Conference in Singapore on "Investment funds in Asia: issues for fund managers, sponsors and investors". The session explored whether the increasing economic growth in certain countries in Asia has led to corresponding growth in business and investment opportunities for fund managers, sponsors and investors in these jurisdictions. The session also introduced the legal framework of the relevant investment fund laws and shed light on the commercial conditions found by foreign asset managers accessing the market. Several speakers from prominent financial institutions presented at the event, which was attended by market practitioners.

Deacons also hosted a cocktail reception on 17 October 2007 in Singapore for clients and international delegates to the conference. Over 200 guests attended the event.

©October 2007

Whilst every effort has been made to ensure the accuracy of this publication, it is for general guidance only and should not be treated as a substitute for specific advice.