On 17 Feb 2025, the SFC issued a circular establishing regulatory requirements for Listed Alternative Funds, mandating minimum market capitalisation of HK$780 million (US$100 million) and group-wide AUM of the same threshold for management companies. The circular imposes strict investment limits (30% borrowing cap), quarterly NAV publication, and mandatory investor knowledge assessments for intermediaries, while clarifying that existing UT Code and Listing Rules apply with tailored conditions for alternative asset funds.
This article was generated using SAMS, an AI technology by Timothy Loh LLP.
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Introduction
On 17 Feb 2025, the Securities and Futures Commission (SFC) issued a circular clarifying the regulatory requirements for authorising closed-ended collective investment schemes (Alternative Funds) seeking listing on the Stock Exchange of Hong Kong Limited (SEHK) as Listed Alternative Funds, and the distribution standards applicable to intermediaries.
Authorization and Product Requirements
SFC-authorised Listed Alternative Funds must comply with the Overarching Principles and Unit Trusts and Mutual Funds (UT) Code under the SFC Handbook. The fund must have an expected market capitalisation of at least HK$780 million (US$100 million) at listing. The SFC may consider applications below these thresholds on a case-by-case basis with supporting evidence of fund size or management company experience. These funds must be authorised under sections 104 and 105 of the Securities and Futures Ordinance (SFO) and comply with Chapter 8.11 of the UT Code and Chapter 20 of the Main Board Listing Rules.
Management Company Standards
The management company must satisfy Chapter 5 of the UT Code, with competence and experience in managing public listed vehicles and relevant alternative assets on a group-wide basis. It must have group-wide assets under management (AUM) of at least HK$780 million (US$100 million) invested in relevant alternative assets and demonstrate a good regulatory compliance track record.
Listing and Trading Conditions
A listing agent must be appointed under Chapter 20 of the Listing Rules, with the SFC reserving the right to require it to act as a sponsor. Listed Alternative Funds must ensure wide public holding (minimum 25% public ownership) and maintain an open market for units/shares. The SFC will establish a standalone product category for these funds on its and HKEX websites with distinctive stock short names and code ranges.
Investment, Valuation, and Disclosure Rules
Investment requirements include a well-diversified portfolio of alternative assets with varying investment life cycles, a 30% net asset value (NAV) borrowing limit, and specific fund-of-funds restrictions (e.g., no single underlying fund exceeding 20% of NAV). Funds must publish NAV at least quarterly and comply with UT Code valuation requirements (8.7(o), (p), (q)), disclosing key assumptions in annual reports. Offering documents must detail investment policies, NAV publication frequency, valuation models, and risks related to illiquid assets and valuation uncertainties.
Distribution and Investor Protection
SFC-authorised Listed Alternative Funds are classified as complex products. Intermediaries must conduct a knowledge test to assess client understanding of relevant alternative assets before transacting with retail clients (excluding institutional/qualified corporate professional investors). Clients lacking knowledge must receive adequate training. Intermediaries must provide risk disclosure statements specific to the fund and verify sufficient net worth to bear potential losses.
Special Cases and Application Process
The SFC may grant authorisation for well-established Alternative Funds already listed on internationally recognised exchanges with comparable regulatory oversight. The circular permits case-by-case flexibility for additional conditions based on fund strategy. Prior consultation with the SFC is mandatory before applying for authorisation, with queries directed to the Investment Products Division.
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