Mr. Chin：It would be nice to be a farmer and grow my own fruits and vegetables after retirement.
Colleague A：Hong Kong is a densely populated city. You may have to go overseas to make this happen. I have seen some overseas agricultural investment schemes online involving farming and raising livestock. You may think about it.
Mr. Chin：Investing in a farm and running your own farm are not the same. Those alternative investment schemes involving agricultural projects may constitute a collective investment scheme (CIS) under the Securities and Futures Ordinance.
Colleague A：I suppose CIS refers to those fund investments?
Mr. Chin：Funds, MPFs and REITs are common types of CISs, but CISs do not necessarily only exist in the form of mutual funds or unit trusts.
Colleague A：Sometimes, we come across different investment schemes online or through other channels. How can we tell if they are CISs?
Mr. Chin：A CIS is a scheme or arrangement that pools the funds contributed by various investors to invest in the underlying assets managed by an operator as a whole. If it is a CIS, investors do not have day-to-day control or the right to make operational decisions over the assets. For example, many overseas farm investment schemes require investors to enter into a custody agreement, which allows the scheme operators to appoint specific personnel or team(s) to run and manage the farms, while investors will be entitled to share the profits of the farms.
Colleague A：Investing is all about making money. Does it really matter if the investment scheme is a CIS?
Mr. Chin：Investing is not only about making or losing money. We also need to consider the relevant regulation and protection of investors’ interests. Unlike usual transactions of assets, the structure and operation of a CIS are more complicated. It may involve upfront charges, annual management fees or other charges. There may also be a lock up period during which investors cannot exit their investments. Investors must be fully aware of the terms of the scheme and in particular their rights and responsibilities.
Colleague A：Are CISs regulated?
Mr. Chin：Under existing regulations, unless exempted, a CIS must be authorised by the SFC before it can be offered to the Hong Kong public. However, many alternative investment schemes that look like a CIS are usually unauthorised by the SFC. They may involve planting trees, raising livestock, or property projects such as hotels, shopping malls, student dormitory and overseas land parcels. It is difficult to verify whether these schemes are regulated by overseas regulators.
Colleague A：Investor protection is indeed an uncertainty for these unauthorised alternative investment schemes.
Mr. Chin：It is always important to clearly understand the features and the associated risks of the schemes before making an investment decision. Unauthorised investment arrangements are subject to higher investment risks. The SFC publishes the Suspicious Investment Products Alert List on its website, listing out suspected unauthorised CISs such as those involving real estate, digital tokens and initial coin offerings. Since these arrangements and their offering documents are not authorised by the SFC, the products may not be suitable for the Hong Kong public and the product disclosures may not be clear and complete to help investors fully understand the product features and risks. So, you must be extremely cautious when investing in these products and seek independent legal advice if necessary.
