Hong Kong regulator reclassifies certain funds with exposure to private markets
Hong Kong’s market regulator has reclassified some of the city’s authorised funds with exposure to private market assets above a certain amount as complex products, raising the threshold for selling these products to retail investors. Funds with exposures to direct or indirect private market assets amounting to 50 per cent or more of their net asset value would be recategorised. The Securities and Futures Commission (SFC) said that it observed some funds gaining indirect exposure to private...
The industry has increasingly focused on the risks of what was previously a booming private credit industry
Hong Kong’s market regulator has reclassified some of the city’s authorised funds with exposure to private market assets above a certain amount as complex products, raising the threshold for selling these products to retail investors.
Funds with exposures to direct or indirect private market assets amounting to 50 per cent or more of their net asset value would be recategorised.
The Securities and Futures Commission (SFC) said that it observed some funds gaining indirect exposure to private market assets through layered structures and complex instruments, which might lack transparency.
This structure made it difficult for retail investors to fully understand the underlying risks, the SFC said in a circular released on Thursday.
Due to low liquidity, valuation challenges and higher credit risks, funds with exposure to private credit and private equity would need to enhance their transparency regarding underlying investments and associated risks, according to the SFC.
Funds classified as complex products are subject to the SFC’s selling requirements, which include ensuring product suitability, the regulator added.
