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October 11, 2005 at 08:00 PM
HONG KONG (HedgeWorld.com)–Little will change in the guidelines drafted by the Hong Kong Securities and Futures Commission earlier this year, although the regulator did decide to clarify a few sections of its hedge fund offering rules.
Hedge fund managers wanting guidance on how much general money management experience is required before offering retail hedge funds in Hong Kong were granted their requests, while those wanting lower collateralization thresholds were denied leniency.
The commission revised its May consultation paper to say that they will take into account various factors in assessing a management firm’s experience. At least two key personnel in the company must have at least five years of relevant experience. In the case of funds of hedge funds, two key personnel will need to have at least two years of specific investment management experience.
The guidelines also specify what types of experience are acceptable for managers. For example, general experience acquired through academia, sales, marketing or back-office administration would not apply.
In reviewing recent market events, the commission also decided it wasn’t appropriate to raise the collateralization level for hedge fund managers. Capping collateralization at 100%, officials say that when the assets of a fund are charged to a prime broker for financing, the borrowed amount can not exceed the assets the fund has under management.
The SFC said its concern over collateralization stemmed from a wide range of regulatory issues such as conflicts of interest when prime brokers are forced to foreclose on a hedge fund and the impact on investors when collateral stipulations are lowered.
Officials also decided not to change the investment minimum for retail hedge fund offerings, although those responding to the SFC disagreed on whether the minimum should be lowered.
