HKSI Paper 12 Overview of the asset management industry question: collective investment scheme under the SFO

HKSI Paper 12Overview of the asset management industry

Twenty investors pay into Lantern Property Club. Its operator, Lantern Ltd, charges a fee to buy and manage office units as one portfolio and pays out the rental profits. The investors vote once a year on strategy but take no part in day-to-day management. Is the club a collective investment scheme under the SFO?

A Yes, but only once its interests are offered to the public in Hong Kong
B Yes, as a right to be consulted or to give directions does not amount to day-to-day control
C No, as the definition covers only arrangements that hold securities, not real estate
D No, as investors who vote each year on strategy keep control over the management of the property

Show the answer and explanation

Answer: B. Yes, as a right to be consulted or to give directions does not amount to day-to-day control

Paragraph (a) of the definition in Sch. 1 Pt 1 of the SFO has three limbs: participants do not have day-to-day control of the property 'whether or not they have the right to be consulted or to give directions'; the property is managed as a whole or the contributions and profits are pooled; and the purpose is to let participants share in profits or income from the property. An annual vote on strategy is not day-to-day control, and Lantern Ltd runs the club as a business for a fee, so the 'not by way of business' exclusion does not apply. 'Property' includes land, so office units count. Whether interests are offered to the public decides if SFC authorisation is needed under s.103 and s.104, not whether the arrangement is a CIS. Source: SFO (Cap. 571) Sch. 1 Pt 1, definition of 'collective investment scheme'; definition of 'property' (as at October 2026).

Common mistake

Thinking a vote or consultation right takes an arrangement outside the CIS definition. The definition expressly says such rights do not matter.

Practise more Paper 12 Overview of the asset management industry questions

Exam-style questions with worked answers, then full timed mocks. Free to start.

Start practising →

Study note: Overview of the asset management industry HKSI Paper 12 practice questions & mock exams

Related HKSI Paper 12 questions

Greenwood GP Ltd, a private company incorporated in Hong Kong, is the general partner of a proposed limited partnership fund. Which of the following could NOT be appointed as the fund's investment manager under Cap. 637?Jade Asia Fund is a UCITS established in Luxembourg. It is authorised by the SFC for sale to the Hong Kong public, and its investment manager is a Type 9 licensed corporation in Hong Kong. How is the fund classified from a Hong Kong point of view?Mrs Wong has HK$50,000 to invest and wants exposure to about 150 Asian corporate bonds, most of which trade in minimum lots of US$200,000. What does a bond fund mainly offer her?

Build a daily practice habit — a few exam-style questions a day, with worked answers. Free to start.

Start practising →

Original study material mapped to the public HKSI Paper 12 syllabus. Unofficial, not endorsed by HKSI Institute or the SFC. Verify figures and rules against current guidance before relying on them.

HKSI Paper 12 Overview of the asset management industry question: collective investment scheme under the SFO

HKSI Paper 12Overview of the asset management industry

A Yes, but only once its interests are offered to the public in Hong Kong
B Yes, as a right to be consulted or to give directions does not amount to day-to-day control
C No, as the definition covers only arrangements that hold securities, not real estate
D No, as investors who vote each year on strategy keep control over the management of the property

Show the answer and explanation

Answer: B. Yes, as a right to be consulted or to give directions does not amount to day-to-day control

Common mistake

Thinking a vote or consultation right takes an arrangement outside the CIS definition. The definition expressly says such rights do not matter.

Practise more Paper 12 Overview of the asset management industry questions

Exam-style questions with worked answers, then full timed mocks. Free to start.

Start practising →

Build a daily practice habit — a few exam-style questions a day, with worked answers. Free to start.

Start practising →

Original study material mapped to the public HKSI Paper 12 syllabus. Unofficial, not endorsed by HKSI Institute or the SFC. Verify figures and rules against current guidance before relying on them.