Macau has witnessed a significant milestone in its financial services industry with the introduction of the first locally denominated open-end fund. This development not only presents investors with a new investment opportunity but also solidifies Macau's intention to become a regional financial hub.
While investment funds and fund management companies have been permitted in Macau since 1999, the establishment of the first local fund management company to manage a MOP-denominated investment fund is a recent achievement. This development was authorised by the Monetary Authority of Macau (AMCM) on May 2 2024.
The regulatory framework for investment funds in Macau
Decree-Law 83/99/M outlines the regulatory framework for the establishment and management of investment funds in Macau. It specifies the types of companies that can manage funds, the requirements for obtaining authorisation, and the general rules governing fund operations.
To obtain authorisation from the AMCM to establish an investment fund, interested parties must submit:
An authorisation application, including details about the fund's characteristics, economic viability, and launch and management plans;
Statements from the management company and depository accepting their rights and obligations;
Draft management by-laws, informative prospectus, and contracts; and
An economic feasibility study.
The AMCM reserves the right to request additional information or modifications to the submitted documents. Once approved, the fund management by-laws will become known to the public once published in the Official Gazette.
Within 90 days of authorisation, the managing company must initiate the public offering of the fund. If the fund fails to attract a minimum of 30 participating parties and MOP 10 million, the authorisation may be revoked.
The AMCM also requires prior authorisation for any amendments to the management by-laws.
Prohibited assets and compulsory liquidation
Decree-Law 83/99/M prohibits certain assets from being included in the fund's portfolio, such as:
Assets not allowed by the fund's nature;
Participation units in other funds managed by the same or a different fund management company;
Assets issued or held by the fund management company; and
Assets issued or held by entities that directly or indirectly hold 10% or more of the fund manager's share capital.
This is to ensure that the fund's investments are made solely in the best interests of its investors and that there is no potential for conflicts of interest between the fund manager and its investors.
If a fund management company includes prohibited assets in its portfolio or repeatedly violates the management by-laws, the AMCM may order the compulsory liquidation of the fund. Compulsory liquidation may also be ordered due to long-term non-compliance with prudential limits or other situations that may seriously affect participant interests.
Fund management and responsibilities
Fund management in Macau can only be carried out by authorised entities such as banks, finance companies, management companies, or other legally authorised organisations. The fund manager acts on behalf of the investors and is responsible for various operations, including:
Issuing and redeeming participation units;
Selecting fund assets;
Acquiring and selling assets;
Assessing the value of participation units;
Maintaining accountancy books; and
Complying with information provision duties.
The fund manager must also prepare and keep an informative prospectus available for review and submit annual accounts to an external auditor.
Final thoughts
The establishment of Macau's inaugural MOP-denominated open-end fund marks a pivotal moment for the special administrative region's financial sector, offering investors a new investment opportunity.
This pioneering development also serves as a catalyst for further growth and development within the industry, as it may encourage the creation of additional locally based funds, fostering greater competition and ultimately enhancing Macau's reputation as a financial centre.
