Fund Manager not a Connected Person

Quick Read

Hong Kong Exchanges and Clearing Limited ("HKEx") published its listing decision "HKEx-LD22-2011" on 30 December 2011. HKEx determined that a fund/asset manager ("Manager") who was holding approximately 12 percent of the shares of a listed issuer ("Listco") on behalf of clients of certain funds managed by it was not a connected person of Listco under the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited ("Listing Rules").

Background

Funds managed by the Manager

The Manager was a member of an international asset management group and managed funds and assets for clients on a worldwide basis. At the relevant time, it was holding about 12 percent of the shares of Listco ("Shares") on behalf of two categories of clients:

• Out of the 12 percent, 8 percent were held under certain funds managed by the Manager (collectively referred to as "Pooled Funds"). The Pooled Funds had defined investment objectives and mandates to invest in a wide range of companies. The Manager was vested with the power to make investment decisions and voting powers of the Shares by the investors without recourse.
  
  
• The remaining 4 percent were held on behalf of a number of clients under segregated investment accounts and closed-end funds (collectively referred to as "Segregated Funds"). Under the Segregated Funds, the clients had the power to give instructions to the Manager as to how to deal with their investments and the voting powers of the underlying securities were retained by the clients.

Each client mandate of the Segregated Funds had a proxy arrangement. Under this arrangement, the Manager was authorised to vote on behalf of the client according to his/her instruction. In the absence of any specific voting instruction, the Manager was empowered to exercise the voting right according to its proxy voting policy which was endorsed by the client. The policy aimed to ensure that proxy was voted in the best interest of each client.

Connection with Listco

Except as mentioned above, the Manager was not connected with Listco. It was not a member of the board of directors of Listco nor did it have any right to influence its management.

Issue

Whether the Manager was a substantial shareholder (a person who is entitled to exercise, or control the exercise of, 10 percent or more of the voting power at any general meeting of the company) and thus a connected person (including substantial shareholder of the company) of Listco under the Listing Rules.

Decision

The Manager did not have control of 10 percent or more of the Shares and it was not a substantial shareholder of Listco. It was not a connected person of Listco under the Listing Rules.

In making the decision, HKEx was of the view that the Manager had control over the 8 percent interest held under the Pooled Funds. However, the 4 percent interest held by the Manager under the Segregated Funds could be separated from the 8 percent interest because:

• The beneficial owners of the Shares were the clients of the Segregated Funds and not the Manager. The clients could decide the buying and selling of the Shares.
  
  
• The exercise of the voting rights attached to the Shares was subject to the clients’ specific instructions. Although the Manager was entitled to exercise the voting rights without any specific instructions, it was required to vote in the best interests of the clients, and not itself, under the proxy voting policy endorsed by the clients.

You can download copies of the listing decision via the link below:

http://www.hkex.com.hk/eng/rulesreg/listrules/listdec/Documents/ld22-2011.pdf