Hedge fund investment
Charltons provides high impact advice to hedge funds on the management, trading and investment of hedge fund assets. Our hedge fund clients range from global fund managers to smaller start-up managers.
We have worked with hedge funds across the full spectrum of asset classes, including listed stocks, fixed income and derivative securities, property, natural resources, private equity, venture capital, and distressed debt. We have also advised on a range of hedge fund strategies including long / short, arbitrage and socially responsible investing.
Clients receive smart and practical advice from multidisciplinary lawyers with broad regulatory and transactional experience, across M&A, private equity and venture capital, lending and capital markets.
We provide an insightful and highly personalised service to clients, advising on all investment and financing stages, from start-up funding through “Series A” and subsequent preferred investor rounds, pre-IPO investments and listings. With our extensive experience of M&A and IPO transactions, we can advise whether early investment structures will facilitate subsequent liquidity event such as a trade sale or IPO. We can also assist in pre-IPO planning and structuring (including due diligence and Hong Kong Stock Exchange compliant pre-IPO investments). We also advise on all forms of equity and debt financings by listed companies (including placements, rights issues, open offers and convertible debt securities). We can also guide hedge fund managers through the disclosure of interests regime under the Securities and Futures Ordinance (Cap. 571) (SFO) and related Securities and Futures Commission (SFC) and Hong Kong Stock Exchange filings.
On venture capital and private equity investments, we have significant experience of negotiating the terms of preferred shares (such as preferred dividends and liquidation preference), information and supervisory rights, operational vetoes, board representation, founder restrictions (for example, non-compete undertakings, and restrictions on transferring equity), anti-dilution protection on “down” rounds, and the scope of founder warranties.
We also advise on loan facilities (including trade financings, bridge loans and revolving credit facilities), debt workouts and restructurings.
Marketing of hedge funds
The marketing of any hedge funds to the general public in Hong Kong must be carried out by a corporation licensed with the Securities and Futures Commission (SFC) to carry out type 1 (dealing in securities) regulated activity or any person (i.e. licensed representatives) accredited to such corporation who is licensed to do so.
A hedge fund manager licensed by the SFC to carry out type 9 (asset management) regulated activity may market hedge funds as long as such marketing activity is carried out wholly incidental to its funds management activities. This would generally mean that the hedge fund manager may only market funds which are under its management; if it wishes to market funds which are not under its management however, it would need to separately obtain a type 1 (dealing in securities) license from the SFC.
Unauthorised hedge funds are not permitted to be marketed in Hong Kong unless an exemption, as set out in the Securities and Futures Ordinance (Cap. 571) (SFO), applies. Some key exemptions include marketing by way of private placement (i.e. marketing to less than 50 persons) and marketing only to “professional investors”, as the term is defined under Schedule 1 to the SFO which includes SFC licensed corporations, banks, insurance companies, high net worth individuals with portfolio of at least HK$8 million, collective investment schemes and their operators, trust companies with total assets of at least HK$40 million etc.
For unauthorised corporate funds, additional exemptions are contained in the Seventeenth Schedule of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32 of the Laws of Hong Kong), which includes funds where the minimum subscription amount is no less than HK$500,000 per investor.