Marketing Private Funds and Discretionary Account Services

Transcription

1 Marketing Private Funds and Discretionary Account Services Asia and Beyond Fifth Edition, October 2014

2 Marketing Private Funds and Discretionary Account Services Asia and Beyond Fifth edition October 2014 General editor: Scott Carnachan, Deacons Whilst every effort has been made to ensure the accuracy of this publication, it is for general guidance only and should not be treated as a substitute for specific advice Deacons

3 Marketing Private Funds and Discretionary Account Services Asia and Beyond Fifth edition October 2014 This book is designed to assist asset managers in their capital-raising and marketing activities. It uses a standard questionnaire that Deacons developed to provide practical guidance on marketing and the other activities that asset managers can conduct in each location. The book includes answers for various jurisdictions in Asia, as well as Australia, Luxembourg, Switzerland, the United Kingdom and the United States. Deacons worked with specialist law firms in each jurisdiction to answer the questionnaire. We trust you will find it useful. About Deacons Deacons is the oldest and largest independent law firm in Hong Kong. We provide an extensive range of legal and commercial services to local and international corporations. With over 160 years of experience in providing legal services, our clients are assured of the integrity and stability of one of the region s oldest and most respected law firms. Financial Services at Deacons Deacons Financial Services Group is a dedicated team of funds and regulatory lawyers with substantial experience in funds, regulatory, licensing, compliance and securities matters. Deacons is credited as being the market leader in Hong Kong in terms of depth of client base and range of funds we have established. Individuals in the team offer a diverse range of international and local experience and are capable of conducting transactions in English, Cantonese, Mandarin, Japanese and Malay. Deacons has a long and prestigious history in the hedge funds sector and a reputation for assisting clients to bring innovative products to investors. We have advised on a multitude of hedge fund start-ups throughout Asia. Deacons acts for more than 100 managers and some of Asia's largest hedge funds, and has close relationships with prime brokers and hedge fund administrators. Deacons regularly assists managers to set up private equity and venture capital funds. Deacons can leverage its considerable experience to assist private equity groups by pulling together the specialisations of the firm in investment funds, mergers and acquisitions, corporate finance and human resources and pensions. Deacons regulatory lawyers can assist managers with all their regulatory needs, including advice on disclosure of interests, insider dealing and market misconduct, data privacy and protection, competition, bribery and corruption laws. For further information about Deacons and our services, please visit our website

4 Asia Contents Hong Kong...1 India...16 Indonesia...33 Japan...46 Malaysia...58 PRC...72 Philippines...85 Singapore...98 Taiwan Thailand Beyond Asia Australia England, Scotland and Wales Luxembourg Switzerland United States of America...213

5 Hong Kong Questionnaire for Hong Kong (the Jurisdiction ) Law Firm: Deacons Website: Lawyer: Scott Carnachan, Consultant Telephone: Date: 31 October scott.carnachan@deacons.com.hk In this questionnaire: Fund Manager means an open-ended offshore fund structured as a company that: (a) is managed by the Manager or an affiliate; (b) is not registered or authorised in the Jurisdiction for public sale; and (c) either invests directly in investments or invests substantially all its assets in a master fund. means an offshore investment manager that is not licensed or registered in the Jurisdiction and that does not have a physical presence in the Jurisdiction. Whilst every effort has been made to ensure the accuracy of this questionnaire, it is for general guidance only and should not be treated as a substitute for specific advice. If you would like advice on any of the issues raised, please speak to the contact listed above. 1

6 Hong Kong Part I General Cross-Border Marketing Activities 1. Please indicate which of the following activities the Manager is permitted to undertake. If any activity is permitted subject to restrictions, please describe those restrictions. (a) Attend seminars, conferences and other relevant industry events in the Jurisdiction. Yes, so long as in attending the seminar, conference or other industry event the Manager does not hold itself out as carrying on a business in a regulated activity. The Hong Kong Securities and Futures Ordinance (SFO) defines a number of activities as regulated activities. Marketing the Fund to prospective investors falls within the definition of dealing in securities (type 1 regulated activity). Providing investment advice on the purchase or sale of securities (including interests in the Fund) falls within the definition of advising on securities (type 4 regulated activity). Providing investment management services falls within the definition of asset management (type 9 regulated activity). (b) Speak at seminars, conferences and other relevant industry events in the Jurisdiction. Yes, so long as in speaking at the seminar, conference or other industry event the Manager does not hold itself out as carrying on a business in a regulated activity. The Manager can give educational seminars, give a general market outlook and give commentary on general economic and other issues, such as regulatory or operational issues. The Manager should not say anything that could be construed as marketing the Fund or the Manager s investment management services. (c) Sponsor seminars, conferences and other relevant industry events in the Jurisdiction. Does it make a difference if the Manager is the primary sponsor or only one of a number of sponsors? Yes, so long as by sponsoring the seminar, conference or other industry event the Manager is not seen to be holding itself out as carrying on a business in a regulated activity. Sponsorship of a seminar, conference or other relevant industry event carries a greater risk that it will be viewed as marketing of the Manager s services to the public, which is a prohibited activity. An assessment would need to be made on a case by case basis, taking into account factors such as (i) the subject matter of the event, (ii) the target audience for the event, (iii) the description of the Manager in the materials for the event, (iv) the involvement of the Manager in promoting the event, and (v) other materials describing the Manager that will be made available to participants at the event e.g. client brochures etc. 2

7 Hong Kong The same principles apply whether the Manager is the primary sponsor or only one of a number of sponsors. (d) Whilst in the Jurisdiction, give to people the Manager meets at seminars, conferences and other relevant industry events in the Jurisdiction: (i) business cards; (ii) general information about the Manager; (iii) publications of the Manager that are educational in nature or general market commentary only; (iv) (v) the website address of the Manager; other information about the Manager and its services and products. Whilst in Hong Kong, the Manager can give to people the Manager meets at seminars, conferences and other relevant industry events: (i) business cards; (ii) general information about the Manager; (iii) publications of the Manager that are educational in nature or general market commentary only. Business cards and other information provided should not contain Hong Kong contact details. There is a risk the Manager will be viewed as holding itself out as carrying on a business in a regulated activity if it gives the website address of the Manager to people the Manager meets at seminars, conferences and other relevant industry events whilst in Hong Kong. The Manager can reduce this risk by only giving its website address to (a) representatives of institutional investors such as banks, insurance companies, stock brokers, investment managers and licensed financial advisers, and (b) a small number of other persons. Whilst in Hong Kong, the Manager should only give other information about the Manager and its services and products in response to an unsolicited request for the information; for example, where the relevant person has contacted the Manager as a result of information obtained from a website, magazine or other publication that is not targeted at Hong Kong. (e) From outside the Jurisdiction, send to people the Manager meets at seminars, conferences and other relevant industry events in the Jurisdiction: (i) business cards; (ii) general information about the Manager; (iii) publications of the Manager that are educational in nature or general market commentary only; (iv) (v) the website address of the Manager; other information about the Manager and its services and products. Summary of the law Section 115 of the SFO will deem the Manager to be holding itself out as carrying on a business in a regulated activity if: 3

8 Hong Kong (i) (ii) the Manager actively markets to the public any service the Manager provides outside Hong Kong; and such service would constitute a regulated activity if provided in Hong Kong. In determining whether a person actively markets its services, the Hong Kong Securities and Futures Commission (SFC) will consider the nature of the business activities as a whole and the nature of the marketing. The SFO defines the public as the public of Hong Kong, and includes any class of that public. If the only people in Hong Kong that the Manager markets to are professional investors then there is a reasonable argument that the Manager is not marketing to the public (although there is no formal authority for this view). It would also be prudent to limit the number of "professional investors" to whom the Manager markets. Professional investors include institutional investors such as banks, insurance companies, stock brokers, investment managers and licensed financial advisers, but does not necessarily include insurance intermediaries. Practical application The Manager can send from outside Hong Kong to people the Manager meets at seminars, conferences and other relevant industry events: (i) business cards; (ii) general information about the Manager; (iii) publications of the Manager that are educational in nature or general market commentary only. Business cards and other information provided should not contain Hong Kong contact details. There is a risk the Manager will be viewed as actively marketing its services to the public in Hong Kong if it sends from outside Hong Kong the website address of the Manager to people the Manager meets at seminars, conferences and other relevant industry events. The Manager can reduce this risk by only giving its website address to (a) representatives of institutional investors such as banks, insurance companies, stock brokers, investment managers and licensed financial advisers, and (b) a small number of other persons. There is a risk the Manager will be viewed as actively marketing its services to the public in Hong Kong if it sends from outside Hong Kong other information about the Manager and its services and products to people the Manager meets at seminars, conferences and other relevant industry events. The Manager can reduce this risk by only sending information to (a) representatives of institutional investors such as banks, insurance companies, stock brokers, investment managers and licensed financial advisers, and (b) a small number of other persons. Please see our responses to Part III for further information in relation to sending information about the Fund to persons in Hong Kong. The Manager can also send from outside Hong Kong other information about the Manager and its services and products in response to an unsolicited request for the information; for example, where the relevant 4

9 Hong Kong person has contacted the Manager as a result of information obtained from a website, magazine or other publication that is not targeted at Hong Kong. (f) Invite (and pay for) people in the Jurisdiction to attend lunches, dinners, sporting events, theatrical shows and other entertainment in the Jurisdiction. Yes, so long as (i) the Manager is not seen to be holding itself out as carrying on a business in a regulated activity in Hong Kong e.g. by statements in the invitation, and (ii) the invitation does not breach the Prevention of Bribery Ordinance. (g) Invite (and pay for) people in the Jurisdiction to attend lunches, dinners, sporting events, theatrical shows and other entertainment outside the Jurisdiction. Yes, so long as (i) the Manager is not seen to be holding itself out as carrying on a business in a regulated activity in Hong Kong e.g. by statements in the invitation, and (ii) the invitation does not breach the Prevention of Bribery Ordinance. 2. Does the Jurisdiction have restrictions on cold calling e.g. communicating with a prospective investor face-to-face, by telephone, etc where the prospective investor has not requested the communication? If yes, please describe the restrictions. Section 174 of the SFO prohibits cold calling, subject to certain exemptions described below. Prohibition on unsolicited calls Section 174 states that a licensee (otherwise known as an intermediary ) or its representatives may not make an offer to a person to enter into an agreement to provide financial products or services, nor induce or attempt to induce a person to enter into such an agreement, during or as a consequence of an unsolicited call. Definitions of call, unsolicited call and permissible communication Call means a visit in person or a communication made by any means. "Unsolicited call" means a call made otherwise than at the express invitation of the person called upon. A call does not include a "permissible communication", which is a communication that is not a visit in person, a telephone conversation or any other interactive dialogue where immediate exchange of statements can be made. As a result, communications by fax, postal mail and are permissible. Communications by may be subject to the Unsolicited Electronic Messages Ordinance. Exemptions from prohibition on cold calling The prohibition in section 174 does not apply to calls on licensed persons (such as stock brokers, investment managers and financial advisers), professional investors, money lenders, solicitors or professional accountants 5

10 Hong Kong 3. Are there any other general marketing activities that the Manager is permitted to undertake in the Jurisdiction? In addition to the activities noted in our answer to Question 1(d), the Manager may conduct activities that are generic in nature such as providing its comments on the general outlook and developments of the industry or general investment strategies and trends. 4. Are there any other general marketing activities that the Manager is permitted to undertake from outside the Jurisdiction in relation to people who are in the Jurisdiction? In addition to the activities noted in our answer to Question 1(e), the Manager may conduct activities that are generic in nature such as providing its comments on the general outlook and developments of the industry or general investment strategies and trends. 5. Are there any restrictions on how frequently representatives of the Manager can (or should) visit the Jurisdiction e.g. personal or corporate tax? For the Manager: No restrictions on frequency of visits to Hong Kong. Whether the Manager will be subject to Hong Kong profits tax depends on the activities it carries out in Hong Kong (whether by its employees, officers or agents). The number of days that the Manager carries out activities in Hong Kong is not generally relevant. For employees of the Manager: A maximum of 60 days in any one year of assessment (the period from 1 April to 31 March in the following year). An employee will not be charged to Hong Kong salaries tax if (i) the employee is not a Hong Kong resident (i.e. the employee is only a visitor to Hong Kong during the employee s stays in Hong Kong) and (ii) the aggregated number of days that the employee spends in Hong Kong in the relevant year of assessment does not exceed 60 days. This period includes any day on which the employee is in HK for whatever reason (including non-business trips). 6

11 Hong Kong Part II Cross-Border Marketing of Investment Management Services 1. Are investors in the Jurisdiction permitted to appoint an offshore investment manager to manage a segregated mandate? If only certain categories of investor are permitted to do so, please describe those categories. Yes. Subject to any restrictions in their constitutive documents, Hong Kong investors can appoint an offshore investment manager to manage a segregated mandate. If the answer to the above question is no, please go to Part III. 2. Are there any restrictions on the marketing activities the Manager can undertake outside the Jurisdiction in relation to prospective investors in the Jurisdiction? Yes. See our responses to Question 1(e) of Part I. 3. Can the Manager provide details of its investment management services in response to an unsolicited request from a prospective investor in the Jurisdiction? Yes. Responding to an unsolicited request by a prospective investor does not constitute active marketing by the Manager of its services to the public. 4. Can the Manager respond to a request for proposal from a prospective investor in the Jurisdiction? Does it make a difference whether the request for proposal is private (i.e. sent to the Manager directly) or public (i.e. open to anyone)? Yes. A request for proposal is an unsolicited request by a prospective investor and so does not constitute active marketing by the Manager of its services to the public. The answer is the same whether the request for proposal is private or public. 5. Can the Manager meet with a prospective investor in the Jurisdiction to discuss the Manager s investment management services at the request of that prospective investor? Yes. Responding to an unsolicited request by a prospective investor to meet with that prospective investor does not constitute active marketing by the Manager of its services to the public. 6. Can the Manager attend a beauty parade or finals presentation in the Jurisdiction to discuss the Manager s investment management services at the request of a prospective investor? Yes. Attending a beauty parade or finals presentation is equivalent to the situation described in Question 5. 7

12 Hong Kong 7. If an investor in the Jurisdiction enters into an agreement appointing the Manager to provide investment management services: (a) is there a requirement that the agreement be in a particular language? No. (b) can the agreement be governed by a law other than the laws of the Jurisdiction? Yes. (c) are there any other provisions that must be included in the agreement as a result of regulatory requirements in the Jurisdiction? No. 8

13 Hong Kong Part III Cross-Border Marketing of Unregistered Offshore Funds Non-Public Offering 1. Are investors in the Jurisdiction permitted to invest in the Fund? If only certain categories of investor are permitted to do so, please describe those categories. Yes. Subject to any restrictions in their constitutive documents, Hong Kong investors can invest in the Fund. If the answer to the above question is no, please go to Part IV. 2. Please describe the requirements for a non-public offering of the Fund in the Jurisdiction, including (where applicable): (a) whether the Fund needs to be authorised or registered in the Jurisdiction in order for it to be offered in a non-public offering; (b) the types of prospective investors that may be approached; (c) the number of prospective investors that may be approached; (d) the minimum investment amount; and (e) recommended or required disclaimers in offering documents and marketing materials. Offering of the Fund to the public in Hong Kong requires prior SFC authorisation. There are a limited number of situations in which an information memorandum or other document which contains an invitation to subscribe for interests in the Fund can be made available to potential investors in Hong Kong without needing to comply with the prospectus requirements of the Hong Kong Companies (Winding Up and Miscellaneous Provisions) Ordinance (CO) or be authorised by the SFC before issue. The first situation is known as the professional investors exception. The second situation is known as the private placement exception. Professional investors exception Professional investors, as defined in the SFO, include (i) institutional investors such as banks, insurance companies, stock brokers, investment managers and licensed financial advisers (but does not necessarily include insurance intermediaries), and (ii) high net worth investors (HNW investors), being trust corporations with at least HK$40 million in assets and individuals, corporations and partnerships with investment portfolios of at least HK$8 million. It is necessary to document that a HNW investor satisfies the asset test / portfolio threshold and so qualifies as a professional investor. Documentary proof can include custodian statements, audited financial statements (or in the case of individuals, financial statements verified by an accountant) or such other evidence as intermediaries consider sufficient. Private placement exception Private placement arises where information is distributed in such a manner that it does not constitute an offer to the public and therefore does not fall 9

14 Hong Kong within the prohibition contained in the SFO or the definition of "prospectus" in the CO. Schedule 17 to the CO sets out some situations where a document used in a private offer by the Fund will not constitute a prospectus, including: (a) an offer to not more than 50 persons (the limited offerees exception); (b) an offer in respect of which the total consideration does not exceed HK$5 million or its equivalent in another currency (the small offer exception); and (c) an offer in respect of which the minimum subscription per investor is not less than HK$500,000 or its equivalent in another currency (the minimum subscription exception). It is possible to combine an offer under the professional investors exception with an offer under the limited offerees exception (that is, to offer the Fund to an unlimited number of professional investors as well as to no more than 50 non-professional investors). However, if the minimum subscription exception is relied on, all Hong Kong investors must invest at least HK$500,000 or its equivalent in another currency, regardless of whether they are professional investors. In each case, the offer document must include a prescribed warning statement in the following form or a form to the like effect: W A R N I N G The contents of this document have not been reviewed by any regulatory authority in Hong Kong. You are advised to exercise caution in relation to the offer. If you are in any doubt about any of the contents of this document you should obtain independent professional advice. 3. If the Fund needs to be authorised or registered in the Jurisdiction in order for it to be offered in a non-public offering, what ongoing obligations does the Fund or the Manager need to comply with in order to maintain the authorisation or registration? N/A. 4. Are there any restrictions on the marketing activities the Manager can undertake outside the Jurisdiction in relation to prospective investors in the Fund who are in the Jurisdiction? Yes. The Manager must not do anything that could be construed as offering the Fund to the public in Hong Kong. Accordingly, the Manager must ensure that any marketing activities it undertakes outside Hong Kong in relation to prospective investors in Hong Kong comply with either the professional investors exception or the private placement exception described in our response to Question 2 above. In addition, the Manager must comply with the restrictions on cold calling, as described in our response to Question 2 of Part I above. 10

15 Hong Kong 5. Can representatives of the Fund or the Manager market the Fund to prospective investors whilst the representatives are in the Jurisdiction? No. Marketing the Fund to prospective investors whilst in Hong Kong falls within the definition of dealing in securities (type 1 regulated activity) and can only be done by persons who are licensed by or registered with the SFC for type 1 regulated activity. 6. Can a local agent be appointed to market the Fund to prospective investors in the Jurisdiction? If yes, what licences or approvals does the local agent require? Yes. The local agent must be licensed by or registered with the SFC for dealing in securities (type 1 regulated activity). 7. If a local agent is appointed to market the Fund to prospective investors in the Jurisdiction, can representatives of the Fund or the Manager accompany the local agent to meet with prospective investors? If yes, what activities are the representatives permitted to undertake and what information are the representatives permitted to discuss with prospective investors? Yes, representatives of the Fund or the Manager may accompany the local agent to meet with prospective investors in Hong Kong. The representatives can provide general information on the Manager, including its history, structure, investment approach and philosophy, and the Manager s outlook for the markets. The representatives can also provide information on the background and experience of the portfolio manager(s) who will be responsible for managing the Fund. The representatives cannot make any recommendations about the Fund, provide information on how to invest in the Fund, negotiate fee rebates or give the Fund s offering documents to prospective investors. Instead, the local agent should be responsible for these activities. 8. Can the Manager provide details of the Fund in response to an unsolicited request from a prospective investor in the Jurisdiction? Yes, so long as in doing so the Manager complies with either the professional investors exception or the private placement exception described in our response to Question 2 above. 9. Can the Fund accept an unsolicited investment from a prospective investor in the Jurisdiction? Yes, so long as in doing so the Manager complies with either the professional investors exception or the private placement exception described in our response to Question 2 above. 11

16 Hong Kong 10. Can the Manager give information about the Fund in response to a request for proposal from a prospective investor in the Jurisdiction? Does it make a difference whether the request for proposal is private (i.e. sent to the Manager directly) or public (i.e. open to anyone)? Yes, so long as in doing so the Manager complies with either the professional investors exception or the private placement exception described in our response to Question 2 above. The answer is the same whether the request for proposal is private or public. 11. Can the Fund or the Manager meet with a prospective investor in the Jurisdiction to discuss the Fund at the request of that prospective investor? Yes, if accompanied by a licensed local agent, but the information a representative can provide to the prospective investor whilst in Hong Kong is limited as described in our response to Question 7 above. 12. Can the Manager attend a beauty parade or finals presentation in the Jurisdiction in order to discuss the Fund at the request of a prospective investor? Yes, if accompanied by a licensed local agent, but the information a representative can provide to the prospective investor whilst in Hong Kong is limited as described in our response to Question 7 above. 13. If an investor in the Jurisdiction subscribes for shares in the Fund: (a) is there a requirement that the subscription agreement be in a particular language? No. (b) can the subscription agreement be governed by a law other than the laws of the Jurisdiction? Yes. (c) are there any other provisions that must be included in the subscription agreement as a result of regulatory requirements in the Jurisdiction? No. 14. Would your answers to the above questions in this Part III be different if: (a) shares in the Fund were listed on a stock exchange? No. (b) the Fund was structured as a unit trust rather than as a company? If the Fund is structured as a limited partnership, a limited liability 12

17 Hong Kong partnership, a unit trust, or a contractual joint venture rather than as a company, additional steps must be taken to ensure that an offer intended as a private offer is not treated as an offer to the public in Hong Kong. An offer to an unlimited number of professional investors, plus not more than 50 offerees (not actual subscribers) who do not qualify as professionals, will not be treated as an offer to the public in Hong Kong. Further, the following are normally understood to be the requirements for a private placement of securities issued by a non-corporate fund: (a) (b) (c) (d) (e) (f) (c) Each information memorandum to be issued should be numbered in series and contain on the cover the prescribed warning statement referred to in our response to Question 2 of Part III above. Each information memorandum issued should be individually addressed to each offeree, the subscriptions for interests in the Fund should only be accepted from that offeree and the offeree should be requested not to pass on the information memorandum to any other person. The offeree should only be able to purchase interests in the Fund as principal or on behalf of clients pursuant to a discretionary mandate. The minimum subscription per investor should be stated and should be a sizeable amount. The transfer of the interests in the Fund by the offeree to any person in Hong Kong should preferably be restricted for a minimum period of 6 months following allotment. There should be no public advertising at all in Hong Kong in relation to the information memorandum. The issue of promotional material relating to the acquisition of interests in the Fund should be strictly limited to offerees. the Fund was structured as a limited partnership rather than as a company? See our response to Question 14(b). (d) the Fund (or where the Fund is a feeder fund, the master fund in which it invests) was a fund of funds that invests in other investment funds? No. (e) the Fund was a closed-end fund (i.e. investors do not have the ability to redeem their investments)? No. 13

18 Hong Kong Part IV Servicing Clients in the Jurisdiction 1. Are there any restrictions on the information the Manager can send to an existing client in the Jurisdiction in relation to the client s investment portfolio or investment in the Fund? No, so long as the Manager does not include marketing materials for other investment products in the information. 2. Can the Manager meet with an existing client in the Jurisdiction, at their offices or elsewhere in the Jurisdiction, to discuss the client s investment portfolio or investment in the Fund? Yes, so long as the Manager does not market other investment products during the meeting. 14

19 Hong Kong Part V Miscellaneous Information 1. What is the name(s) of the government department or regulator that is responsible for regulating the marketing of investment management services and the marketing of investment funds in the Jurisdiction? The Securities and Futures Commission is the primary regulator responsible for regulating the marketing of investment management services and the marketing of investment funds in the Jurisdiction. 2. What is the principal legislation governing the marketing of investment management services and the marketing of investment funds in the Jurisdiction? The Securities and Futures Ordinance is the principal legislation governing the marketing of investment management services and the marketing of investment funds in the Jurisdiction. 15

20 India Questionnaire for India (the Jurisdiction ) Law Firm: Amarchand & Mangaldas & Suresh A. Shroff & Co. Lawyer: Ipsita Dutta Telephone: / x 343 Date: 31 October ipsita.dutta@amarchand.com In this questionnaire: Fund Manager means an open-ended offshore fund structured as a company that: (a) is managed by the Manager or an affiliate; (b) is not registered or authorised in the Jurisdiction for public sale; and (c) either invests directly in investments or invests substantially all its assets in a master fund. means an offshore investment manager that is not licensed or registered in the Jurisdiction and that does not have a physical presence in the Jurisdiction. Whilst every effort has been made to ensure the accuracy of this questionnaire, it is just for general guidance and should not be treated as a substitute for specific advice. If you would like advice on any of the issues raised, please speak to any of the contacts listed. NOTE: Do note that in terms of the SEBI (Investment Advisers) Regulations, 2013 ( IA Regulations ) investment advisors, providing investment advice are required to obtain registration with SEBI. Whilst currently, the IA Regulations clearly apply to entities who provide investment advice in relation to Indian securities, there exists some degree of ambiguity in relation to the applicability of the IA Regulations to entities which are based offshore and engaged in providing advisory services to Indian clients on investments in foreign (non-indian) securities. This is primarily due to the fact that the definition of investment advice under the Investment Advisers Regulations includes advice in relation to investment products. Given that there is no regulatory clarity on what would constitute an investment product, it is not clear if this term would include foreign securities or products as well. Having said that, a reading of the Investment Advisers Regulations seems to indicate that foreign advisers, advising Indian clients on foreign securities, are not intended to be covered under the aegis of the Investment Adviser Regulations, since a number of the prescribed compliance requirements under the Investment Advisers Regulations would be impracticable for such foreign advisers to comply with. The ambiguity surrounding the application of the IA Regulations to foreign advisers is an issue which has been raised by various stakeholders in their discussions with the regulator but currently, there does not exist any regulatory clarity on this issue. 16

21 India In view of the above, it would be advisable for a Manager to ensure that it undertakes its activities in relation to any product specific information purely on a reverse inquiry basis, so as to be able to demonstrate that it has not actively solicited or conducted business in India. NOTE: Additionally, please also note that the legal regime governing corporates in India has undergone a change as the Companies Act, 1956 has been replaced by the Companies Act, 2013 ( Companies Act ). The new act, in Section 42, prescribes the manner in which companies may offer securities on a private placement basis and stipulates that in case of a private placement, the offer of securities or invitation to subscribe for securities should be made to such number of persons not exceeding fifty or such higher number as may be prescribed. The Companies (Prospectus and Allotment of Securities) Rules, 2014 ( Companies Rules ) issued under Section 42, further clarify, that a company should not make an offer or invitation for private placement of securities to more than 200 persons in the aggregate in a financial year, excluding qualified institutional buyers, employees of the company who are offered securities under a scheme of employee stock option and also provide for various other terms and conditions in relation to private placement of securities in India including a prohibition on marketing such privately placed securities to the general public. For instance, Section 42 read with the Companies Rules inter alia require that the marketing and offering materials should be distributed privately to pre-selected prospective investors and should not be made available to the public generally, and each offer should be made to a specified addressee, with no right of renunciation in favour of other persons, and may only be accepted by such addressee. Accordingly, it is advisable for the entity conducting the offering to have a database of the persons to whom the offer is to be made and the offering document should clearly state that they are private and confidential and for private circulation only and that they may not be further circulated or distributed by the addressee and such documents should not be drafted in any way which may give rise to the impression that it is intended to be circulated to the public. Whilst this Section 42 and the Companies Rules primarily deal with marketing of privately placed Indian securities and does not specifically govern the manner in which foreign securities may be marketed to Indian residents, the abovementioned requirements should be complied with as best practices to ensure that the distribution of marketing and offering materials relating to the Fund does not constitute an offer or invitation to the public within the meaning of the Companies Act. Also refer to our response to Question 2 in Part III below. 17

22 India Part I General Cross-Border Marketing Activities 1. Please indicate which of the following activities the Manager is permitted to undertake. If any activity is permitted subject to restrictions, please describe those restrictions. (a) Attend seminars, conferences and other relevant industry events in the Jurisdiction. The Manager would be permitted to attend seminars, conferences, other relevant industry events in India, so long as only generic non-product specific information is discussed and the Manager does not solicit business or offer financial products or services to clients in India. (b) Speak at seminars, conferences and other relevant industry events in the Jurisdiction. The Manager would be permitted to speak at seminars, conferences and other relevant industry events in India, so long as only generic non-product specific information is discussed and the Manager does not provide any specific information on specific products and does not solicit business or offer financial products or services to clients in India. (c) Sponsor seminars, conferences and other relevant industry events in the Jurisdiction. Does it make a difference if the Manager is the primary sponsor or only one of a number of sponsors? There is no restriction on the Manager sponsoring a seminar or conference in India subject to the condition that only non product specific, generic information is discussed at such seminar and the Manager does not solicit business or offer financial products or services to clients in India at such seminar. There would be no difference if the Manager were to be the primary sponsor or one of a number of sponsors. (d) Whilst in the Jurisdiction, give to people the Manager meets at seminars, conferences and other relevant industry events in the Jurisdiction: (i) business cards; (ii) general information about the Manager; (iii) publications of the Manager that are educational in nature or general market commentary only; (iv) (v) the website address of the Manager; other information about the Manager and its services and products. The Manager may provide information set out in (ii) (iii) and (iv) above. However, providing (i) and (v) may be considered solicitation of business in India and should only be provided upon receipt of a request from the client, on a reverse inquiry basis. (e) From outside the Jurisdiction, send to people the Manager meets at seminars, conferences and other relevant industry events in the Jurisdiction: 18

23 India (i) business cards; (ii) general information about the Manager; (iii) publications of the Manager that are educational in nature or general market commentary only; (iv) the website address of the Manager; (v) other information about the Manager and its services and products. Yes, such information can be provided, but preferably on a reverse inquiry basis. (f) Invite (and pay for) people in the Jurisdiction to attend lunches, dinners, sporting events, theatrical shows and other entertainment in the Jurisdiction. There are no restrictions on the Manager inviting prospective clients to attend lunches, dinners, sporting events, etc. as long as the Manager does not solicit business or offer financial products or services to clients in India and does not provide any specific information on specific products to clients in India. (g) Invite (and pay for) people in the Jurisdiction to attend lunches, dinners, sporting events, theatrical shows and other entertainment outside the Jurisdiction. There are no restrictions on the Manager inviting prospective clients to attend lunches, dinners, sporting events, etc. as long as the Manager does not solicit business or offer financial products or services to such clients. The Manager may respond to queries on specific products or services only on a reverse inquiry basis. 2. Does the Jurisdiction have restrictions on cold calling e.g. communicating with a prospective investor face-to-face, by telephone, etc where the prospective investor has not requested the communication? If yes, please describe the restrictions. Yes, cold calling would lead to solicitation of business and hence is not advisable. Also, where the Manager is a banking entity, please note that all banks, both Indian and foreign, including those not having an operational presence in India, are mandated to seek prior approval from the RBI for schemes being marketed by them in India to Indian residents either for soliciting foreign currency deposits for their foreign/overseas branches or for acting as agents for overseas mutual funds or any other foreign financial services company ( Bank Approval Requirement ). This would also cover cold calling. 3. Are there any other general marketing activities that the Manager is permitted to undertake in the Jurisdiction? The Manager may provide general non-product specific information to prospective clients in India. The principal restriction to bear in mind here is that any discussion on specific products must be on a reverse enquiry basis and the Manager may provide product specific information from an off-shore 19

24 India location, only when the potential client resident in India has directed a request for product specific information. In the event that the Manager receives unsolicited enquiries on specific products from clients in India, he may ask such potential clients to contact him when he returns to his offshore location. Also, do note that the Bank Approval Requirement would be applicable in all cases where the Manager is a banking entity. 4. Are there any other general marketing activities that the Manager is permitted to undertake from outside the Jurisdiction in relation to people who are in the Jurisdiction? The Manager may only provide general non-product specific information to prospective clients while undertaking marketing activities from an offshore location. The principal restriction to bear in mind here is that any discussion on specific products must be on a reverse enquiry basis and the Manager may provide product specific information from an off-shore location, only when the potential client resident in India has directed a request for product specific information. Also, do note that the Bank Approval Requirement would be applicable in all cases where the Manager is a banking entity. 5. Are there any restrictions on how frequently representatives of the Manager can (or should) visit the Jurisdiction e.g. personal or corporate tax? There are no restrictions on how frequently the representatives of the Manager may visit India. However, do note that a person is considered to be resident in India, if he stays in India for a period of 182 days or more in a relevant financial year (April 1 to March 31). A person will also be considered to be a resident if he is in India for 60 or more days in a relevant financial year and has been in India for 365 days or more during four years immediately preceding the relevant financial year. Therefore, in the event that the representatives of the Manager stay in India for periods in excess as indicated above, they would be considered a resident and accordingly be liable to pay income tax in India. 20

25 India Part II Cross-Border Marketing of Investment Management Services 1. Are investors in the Jurisdiction permitted to appoint an offshore investment manager to manage a segregated mandate? If only certain categories of investor are permitted to do so, please describe those categories. As indicated above, the IA Regulations seek to govern and regulate the provision of investment advisory services to Indian investors. In terms of the IA Regulations, entities (including foreign entities incorporated outside India) providing investment advice are required to obtain registration with SEBI, as an investment advisor. Whilst the IA Regulations clearly apply to entities who provide investment advice in relation to Indian securities, there exists some degree of ambiguity in relation to the applicability of the IA Regulations to entities which are based offshore and engaged in providing advisory services to Indian clients on investments in foreign (non-indian) securities. Having said that, a reading of the IA Regulations seems to indicate that foreign advisers, advising Indian clients on foreign securities, are not intended to be covered under the aegis of the IA Regulations, since a number of the prescribed compliance requirements under the IA Regulations would be impracticable for such foreign advisers to comply with. The ambiguity surrounding the application of the IA Regulations to foreign advisers is an issue which has been raised by various stakeholders in their discussions with the regulator but currently, there does not exist any regulatory clarity on this issue. In view of the above, it would be advisable to ensure that all activities in relation to any product specific information are undertaken purely on a reverse inquiry basis, so as to be able to demonstrate that business has not been actively solicited or conducted in India. If the answer to the above question is no, please go to Part III. 2. Are there any restrictions on the marketing activities the Manager can undertake outside the Jurisdiction in relation to prospective investors in the Jurisdiction? The Manager may only provide general non-product specific information to prospective clients while undertaking marketing activities from an offshore location. The principal restriction to bear in mind here is that any discussion on specific products must be on a reverse enquiry basis and the Manager may provide product specific information from an off-shore location, only when the potential client resident in India has directed a request for product specific information. Also, do note that the Bank Approval Requirement would be applicable in all cases where the Manager is a banking entity. 3. Can the Manager provide details of its investment management services in response to an unsolicited request from a prospective investor in the Jurisdiction? Yes, the Manager would be permitted to provide details of the investment management services to a prospective client, on a reverse enquiry basis, from an offshore location. 21

26 India 4. Can the Manager respond to a request for proposal from a prospective investor in the Jurisdiction? Does it make a difference whether the request for proposal is private (i.e. sent to the Manager directly) or public (i.e. open to anyone)? There are no restrictions on the Manager responding to a request for proposal from a prospective client in India. There would be no difference whether such is request is private or public in nature. 5. Can the Manager meet with a prospective investor in the Jurisdiction to discuss the Manager s investment management services at the request of that prospective investor? The Manager would be permitted to meet with prospective client in India as long as he does not solicit business or provide specific information in relation to specific services to clients in India at such meetings. In the event that the Manager receives unsolicited enquiries on the investment management services offered, from clients in India; he may ask such potential clients to contact him when he returns to his offshore location. 6. Can the Manager attend a beauty parade or finals presentation in the Jurisdiction to discuss the Manager s investment management services at the request of a prospective investor? The Manager would be permitted to attend beauty parade or finals presentation in India as long as he does not solicit business or provide specific information in relation to specific products to clients in India at such occasion. In the event that the Manager receives unsolicited enquiries on the investment management services offered, from clients in India, he may ask such potential clients to contact him when he returns to his offshore location. 7. If an investor in the Jurisdiction enters into an agreement appointing the Manager to provide investment management services: (a) is there a requirement that the agreement be in a particular language? There are no requirements in relation to the language of the agreement. However, do note that the agreement should be sent directly from offshore and should be concluded offshore. (b) can the agreement be governed by a law other than the laws of the Jurisdiction? Under Indian law, there is no restriction on the parties choosing the governing law of the contract executed between them, as long as such choice of law is bona fide and legal and has some connection with the transaction. 22