Documents to submit
Reporting and supervision
In July 2021, the Monetary Authority of Macau (AMCM) published:
- a guide on setting up private investment funds (the Guide); and
- a guide on setting up public investment funds.
In January 2022, the AMCM further published the Guideline on Management and Operation of Private Investment Fund (the Guideline), which sets out the regulatory requirements for managing entities, depositories and selling institutions of private investment funds.
Together, the Guide and the Guideline provide a clearer path to the configuration and functioning of a private investment fund in Macau. Unlike a public investment fund, setting up a private investment fund only requires prior communication with the AMCM – no permission or approval from the authority is needed.
A "private investment fund" is an investment fund established under the Macau legal system in the form of a legal person or contract, which raises capital from no more than 50 professional investors in a non-public manner, and invests and manages the funds raised in accordance with the fund management regulation. The term of "non-public manner" refers to the fact that funds are not open for public solicitation and cannot be advertised or marketed through any public channel. "Professional investors" are individuals with a portfolio of at least 8 million Macanese pataca (including individuals who open joint accounts with related parties), or companies or partners with an investment portfolio of at least 8 million Macanese pataca or total assets of less than 40 million Macanese pataca.
The Guide clearly states that a managing entity and a depository must be involved in setting up a private investment fund. The managing entity of a private investment fund must be one of the following entities, and authorised to operate in Macau:
- a bank;
- a finance company;
- an investment fund management company; or
- an asset management company.
In respect of the management of funds, the Guideline requires the managing entity to act in a fair, prudent, professional and diligent manner, as well as in the best interests of investors. In order to avoid conflicts of interest, the Guideline bans personnel who perform administrative, directive or executive functions in the depository from performing or undertaking any positions in the managing entity that are in conflict with the depository business. The Guideline also requires the managing entity to ensure that the professionals in charge of establishing an investment strategy, making investment decisions and allocating assets have at least five years of adequate experience in investment management. The Guideline also foresees that the managing entity may, by contract stipulation, entrust a discretionary manager with the exercise of its investment management functions.
Furthermore, the managing entity must develop a mechanism to prevent any potential conflicts of interest, as well as measures for the management and monitoring of related transactions and the arrangement of information disclosure.
According to the Guide, the depository appointed by the managing entity must be a licensed local or overseas financial institution. For an overseas depository, it must be subject to prudential regulation and supervision by an AMCM-recognised overseas regulatory authority. According to the Guideline, the depository and the managing entity cannot be the same entity, but they can be subsidiaries of the same entity. Similarly, the depository cannot be a subsidiary of the managing entity, or vice versa.
The assets of the funds are safekept by the depository, and the rights and obligations of the entity are outlined in the depository agreement signed by the depository and the managing entity. The depository shall act independently and solely for the benefit of investors and is not allowed to acquire units in a private investment fund for its own investment purposes while performing depository functions. The depository entity shall monitor the operation of the private investment fund, ensuring compliance with the fund management regulation regarding the investment strategy, valuation and pricing.
For the purpose of prior communication, the managing entity shall submit the following information and documents to the AMCM:
- a communication letter, which provides a brief description of the proposed investment fund regarding the structure model, targeted investors and the scope of investments;
- a draft of the fund management regulation;
- a draft presentation of the proposed investment fund for the potential targeted investors, with an indication of the fact that the fund has not obtained any recognition or authorisation granted by the AMCM;
- a declaration of commitment of acceptance, by the managing entity, of the rights and obligations inherent to the management of the applicant funds, as well as to ensure full compliance with the fund management regulations.
- a declaration of commitment of acceptance, by the depositary, of the rights and obligations inherent in the deposit of the securities forming part of the proposed funds;
- any background information, detailed description of the role and the relevant rights and obligations of the cooperating entity (if any); and
- any other information and documents that the AMCM deems necessary.
The content of the fund management regulation is further discussed in the Guideline.
The marketing of private investments funds in Macau must be carried out in accordance with the Guidelines on Provision and Distribution of Financial Products by a licensed financial institution that has obtained the AMCM's consent to perform such activities. In addition, such financial institution must inform investors in writing of certain regulatory aspects of the fund.
Aside from the above, the managing entity shall report to the AMCM the situation of the managed funds, including the submission of annual financial reports before the completion of the fourth month after the end of the fiscal year, and communication before any significant matters occur, such as a significant change of investment strategy, or a merger, division or liquidation of funds.
The AMCM monitors the compliance with and implementation of the requirements of this Guideline by conducting on-site and off-site inspections to ensure the smooth operation of the private offering fund market.
Following a series of actions taken by the government to develop a more diversified economy, these guides and guidelines are yet another measure to enable the financial industry to design more products and serve a wider range of clients, in line with the trend of developing modern finance in Macau. The measures intend to promote the healthy development of the investment fund market and to better protect investors' interests by laying out the legal framework.
For further information on this topic please contact Calvin Tinlop Chui and Sit Mei Wa at Rato, Ling, Lei & Cortés Advogados by telephone (+853 2856 2322) or email ([email protected] or [email protected]). The Rato, Ling, Lei & Cortés Advogados website can be accessed at www.lektou.com.