The revised Fund Manager Code of Conduct (the “FMCC”) of
Hong Kong has made a non-statutory distinction between those fund managers who
are responsible for overall operations of a fund (the “ROOF”) and other fund
managers. Hong Kong based fund managers are likely to fall in the ROOF
category. In this note, the additional obligations imposed on fund managers who
fall in ROOF category are highlighted.
1. Disclosures: ROOF fund managers have
substantial additional disclosure obligations as listed below towards the
investors on various parameters related with the management of the fund.
a. Leverage: To disclose to the investors the
expected maximum level of leverage which a fund manager can employ on behalf of
the fund and the basis of calculation of the leverage which should be
reasonable and prudent.
b. Securities lending: To disclose the fund’s
policy on securities lending, repo and reverse repo transactions, and risk
management policy. The fund manager is also required to disclose the details of
such transactions to the investors. Both the disclosure shall be made at least
once in a year.
c. Liquidity management: To disclose the liquidity
management policy, the liquidity risk of the fund, and explanation of any tools
or exceptional measures which could affect redemption rights of investors.
d. Termination: When a fund manger decides to
terminate a fund, then the fund manager shall disclose to the investors all
material information in relation to the termination of the fund in an
appropriate and timely manner.
e. Custody: The fund manager is also required to
disclose to the investors the details of the custody arrangement for the assets
of the fund, the material risks associated with the custody arrangement and
update on any significant changes.
f. Audit report: The fund manager shall provide the
annual auditor report of the fund to the investor on request of the investor.
g. Side pockets: The fund manager is obligated to
provide full information about side pockets including the categorisation,
policy and rationale for investment in side pockets to the investors. The information
should cover side pockets limits; fee structure and charging mechanism;
differentiation in the redemption lock-up period from the ordinary units; etc.
h. Information on the fund manager: The fund
manager shall also disclose adequate
information about itself including business address, relevant conditions
and restrictions of its business, and the status and identity of the persons
acting on its behalf.
i. Information on the fund: The fund manager shall
also disclose information on the fund that is necessary for the investors to
make an informed judgement about their investment in the fund including any
change of such information.
j. Charges: The disclosure of the basis and amount
of the fund manager’s fees, and charges shall be disclosed to the investors.
When the fund manager is acting as principal then the mark-ups for such
transactions and the circumstances under which transactions are done shall also
be disclosed.
2. Liquidity management
a.
The ROOF fund manager shall have appropriate and
effective liquidity management policy to monitor the liquidity risk of the
fund.
3. Termination
a. The decision of a ROOF fund manager to terminate
a fund should take in account the best interest of the investors in the fund.
4. Custody
a. A ROOF fund manager shall select and arrange to
appoint a functionally independent and properly qualified custodian for keeping
the fund assets. Self-custody is allowed provided the custodial functions are
independent from the person’s fulfilling fund’s management functions.
b. A ROOF fund manager shall ensure continued
suitability and financial standing of the custodian.
c. A formal custody agreement shall be executed
detailing various duties and responsibilities of the custodian.
5. Appointment of auditor
a. An independent auditor shall be appointed to
audit the financial statements of the fund and at the minimum an annual auditor
report shall be provided by the auditor.
6. Fund portfolio valuation
a. Details with respect to the valuation
requirement have been discussed in one of the previous note on the subject.
7. NAV calculation and pricing
a. To ensure that the NAV calculation is done in
accordance with the constitutive documents of the fund and the valuation policies
and procedures thereof.
b. The policies should be designed to detect any
pricing errors and to compensate the investors for any material pricing errors.
8. List of Policies and Procedures
a. A ROOF fund manager shall maintain a list of
policies and procedures for its fund management functions.
Overall, the FMCC puts obligations on a ROOF fund manager to
maintain relevant policies, to disclose policies
and other information about the operations of the fund to the investors and to
ensure that the fund’s business is carried out in compliance with the relevant
policies. Any operational deviation from the policies of the ROOF fund manager is
likely to be viewed seriously by SFC.
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