Published by Fund Selector Asia – 20th Sep 2018
Hong Kong’s Securities and Futures Commission (SFC) reveals discussions with the mainland regulator to relax the limit on overseas delegation.
Under current rules, managers of funds distributed under the Mutual Recognition of Funds (MRF) are not allowed to delegate investment management functions to anyone outside of Hong Kong. For now, managers can only appoint overseas sub-advisors.
“We are well aware that the delegation model could be more efficient, particularly for large fund houses with a global presence,” noted Ashley Alder, SFC chief executive officer, in a recent speech for the Hong Kong Investment Fund Association.
He pointed to the recent growth of global strategy funds domiciled in Hong Kong. “We are now actively re-evaluating the delegation policy, including whether it might be allowed for these global and non-Asian funds.”
Alder said the requirement was put in place due to the regulator’s pledge to promote the development of on-the-ground investment expertise. It was also part of the SFC’s “broader aim of developing Hong Kong as a full-service international asset management centre”.
Easing caps?
Apart from requiring a local management team, there is a 50% sales limit. This means managers must gather more than 50% of their assets from Hong Kong investors for each northbound fund (a Hong Kong-domiciled fund to be sold on the mainland).
Alder said the SFC is aware of arguments in favour of relaxing this limit, but as of now, the total value of funds sold to mainland investors under MRF is still well below 50%.
However, he added that the regulator will keep an eye on how MRF develops and will take up the point with the China Securities Regulatory Commission (CSRC) at the right time.
Another topic frequently discussed among fund industry executives relates to the approval process for northbound funds. This has quickened over the past 12 months, with seven Hong Kong funds approved. Alder said he expects the accelerating trend of approvals will continue.
