I. Core Concept of the Hong Kong SFC Type 9 Regulated Activity (RA9) — Asset Management

1. Type 9 Regulated Activity: Asset Management
   Refers to engaging, in Hong Kong, in the business of managing (including making investment decisions for) securities or futures portfolios under a discretionary mandate.
   • If the product under management is a fund (including funds registered in Hong Kong or overseas), it also falls under the Type 9 regulated activity.
   • In practice, a Type 9 license is often described as akin to a “private fund or public fund manager license” in mainland China’s context; however, in Hong Kong there is no further subdivision (e.g., equity, bond, or large-scale asset management). Any discretionary management of securities/futures investments requires a Type 9 license.
2. Common Business Scenarios for a Type 9 License
   • Discretionary Asset Management: Family offices, External Asset Managers (EAM), etc., providing asset management services to high-net-worth individuals, institutions, or funds;
   • Fund Management: Managing private funds or public funds (in Hong Kong, often called “retail funds”) in the role of fund manager/investment adviser;
   • Specialized Extensions: For instance, virtual asset management requires either a specific extension of the Type 9 license or additional permissions from the SFC.

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II. Typical Additional Conditions and Restrictions

Depending on the approved business model, internal compliance, and conditions the SFC attaches during the licensing process, some Type 9 licensees have specific limitations recorded on their licenses. These conditions are mandatory if explicitly stated on the license. If your license does not list such restrictions, then you are not subject to them.

Here are some common examples:

1. Prohibition on Managing Collective Investment Schemes (CIS) with Full Discretion
   • This indicates that the company cannot act as a fund manager to launch or manage a CIS (e.g., private or public funds). It can only provide discretionary management services for individual client accounts (like a family office/EAM model).
   • Companies that wish to manage funds (CIS) typically would not have this restriction or would apply for an exemption/approval that allows fund management.
2. Prohibition on Managing Futures Portfolios
   • Some Type 9 licensees are only authorized to manage securities portfolios but not futures. The SFC may impose conditions restricting futures-related activity.
   • In order to manage futures portfolios, you must have explicit approval for futures under your Type 9 license, in line with the Securities and Futures Ordinance regarding Type 2, Type 9, etc.
3. Prohibition on Holding Client Assets
   • Commonly seen in so-called “Small 9” licenses. It requires that the firm itself cannot be a custodian or have direct control/possession of client money/securities. Instead, clients must keep assets in a separate account at a bank, trust company, or licensed broker, with the Type 9 firm merely giving trading instructions under discretionary authority.
   • This arrangement is typical for external asset managers (EAM), family offices, or private fund managers: the manager handles investment decisions while the assets remain with a regulated custodian.
4. Services to Professional Investors Only
   • If the license states it can only serve “professional investors” (PIs), it cannot target or accept retail clients in Hong Kong.
   • The definition of “professional investor” can be found in the Securities and Futures Ordinance and its subsidiary legislation, including institutional investors, individuals or families meeting certain asset thresholds, licensed financial institutions, large corporate entities, etc.

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III. “Big 9” vs. “Small 9” — Common Market Distinctions

Although the SFC does not officially classify Type 9 licenses in this manner, the market often uses “Big 9” and “Small 9” to describe differences in capital requirements, authority to hold client assets, scope of business, and client base.

1. Authority to Hold Client Assets
   • “Big 9”: Permitted to hold or control client assets directly. Client funds may be remitted to the firm’s account and managed as a single omnibus account.
   • “Small 9”: Contains a “no client asset holding” restriction, requiring each client to set up a separate custodian account with a bank/broker. The Type 9 firm does not itself handle client funds; it only has trading and investment authority.
2. Business Scope & Client Types
   • “Big 9”: Often able to conduct private and/or public fund management, including fund launches for professional or retail investors. Some “Big 9” can issue and manage retail products (commonly known as public funds) for non-professional (retail) investors.
   • “Small 9”: Generally restricted to private fund or other professional investor-focused asset management. It cannot handle retail funds such as ETFs or mutual funds.
3. Capital Requirements (Ongoing Financial Resources / Liquid Capital)
   • In market practice:
     • A “Big 9” typically must maintain minimum capital (net capital or liquid capital) of around HKD 4.5 million or higher.
     • A “Small 9” may only need HKD 1 million or so.
   • The actual figure depends on the firm’s business scope, whether it engages in multiple regulated activities (securities, futures, etc.), and SFC-imposed conditions.
4. Practical Need for a “Big 9”
   • In reality, most funds maintain their own independent custodian or trust account, so investor capital does not flow directly to the manager’s account. Even though a license might allow holding client assets, few managers choose to physically hold them.
   • Therefore, for many private fund managers, external asset managers, or family offices, a “Small 9” with “no client asset holding” is usually sufficient.
   • Only when a firm intends to engage in retail (public) fund business or requires a single pooled account for all client assets do they typically request the broader scope allowed by a “Big 9.”

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IV. Variations: Public Fund Type 9 & Virtual Asset Type 9

1. Public Fund Type 9
   • Allows a firm to manage and distribute fund products to non-professional (retail) investors.
   • This comes with more stringent compliance measures, higher share capital and liquidity requirements, and stricter demands on Responsible Officers (ROs), to protect the general public.
2. Virtual Asset Type 9
   • If a company intends to include digital currencies, tokens, or other virtual assets in its managed portfolios, it must comply with the SFC’s latest regulations for virtual asset management. Ordinarily, a standard Type 9 license restricts virtual asset exposure to no more than 10% of total AUM.
   • To exceed that 10% threshold, the manager must upgrade or apply for a specific virtual asset management approval. Whether “Big 9” or “Small 9,” the key point is having the relevant qualification/conditions to manage virtual assets.

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V. Applicable and Inapplicable Scenarios

• Applicable Scenarios
  1. High-End Family Offices / EAM: Clients are typically wealthy, meeting PI thresholds; assets are held at private banks/brokers, and the licensed manager merely executes investment decisions.
  2. Private Fund Managers: Fund assets are custodied by a trustee or bank; the manager does not physically control money but needs a Type 9 license to conduct investment management.
  3. Public Fund Managers: Firms that launch and manage funds available to retail investors, requiring additional approvals and higher capital.
  4. Virtual Asset Fund Managers: Must hold a Type 9 license and meet specific SFC criteria for managing virtual assets.
• Inapplicable Scenarios
  1. If a firm wants to service retail clients who are not professional investors, yet the license is restricted to serving only PIs, this is not allowed.
  2. If the firm’s business plan requires holding client funds, but its license states “must not hold client assets,” then it cannot do so.
  3. A firm aiming to manage futures portfolios cannot do so if the license explicitly says “not permitted to manage futures contracts.”

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VI. Conclusion

1. The Hong Kong SFC Type 9 License (Asset Management) is essential for anyone engaging in the discretionary management of securities/futures portfolios, including fund management.
2. The terms “Big 9” and “Small 9” are unofficial, used to differentiate whether a firm can hold client assets, whether it faces higher capital requirements, and whether it can serve retail investors or only professional investors.
3. Many Type 9 licensees have additional conditions, such as “professional investors only,” “no management of futures,” “no holding client assets,” or “no management of CIS,” which can effectively limit the scope of what they can do.
4. For most private funds, external managers, and family offices, not being able to hold client assets is typically sufficient because they work with an external custodian.
5. Firms wishing to do retail (public) fund management or manage client assets in a pooled account need a broader scope of approval and must meet higher compliance and capital requirements.
6. Virtual asset management requires further permission from the SFC to either lift the 10% cap or engage wholly in virtual assets. Before pursuing such activities, managers should ensure they have the appropriate license and compliance framework in place.