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HKSI LE Paper 7 study materials
HKSI LE Paper 7 study resources

HKSI LE Paper 7: Fund Management, Collective Investment Schemes and Asset Allocation

HKSI LE Paper 7 · Work through your exam, one topic at a time.

All guide sections

Fund Management, Collective Investment Schemes and Asset Allocation

This domain tests collective investment schemes, the SFC authorisation regime and the portfolio mathematics used to appraise performance.

What counts as a CIS

A CIS pools property from investors and gives them rights over that property, managed by a scheme operator. SFC authorisation under SFO Part IV and the Unit Trusts and Mutual Funds Code is required before offering a scheme to the Hong Kong public. Authorisation is a structure and disclosure check - not a merit endorsement, and not a guarantee of performance.

UT Code limits

  • Maximum 10% of NAV in securities of a single issuer (up to 30% in Hong Kong government and certain supranational securities).
  • Maximum 10% of any class of an issuer's securities.
  • Maximum 30% of NAV in securities of companies in the same group.
  • Borrowing capped at 10% of NAV; derivatives used for hedging or limited efficient portfolio management.

Other vehicles: REITs (REIT Code; at least 75% of assets in income-producing property), MPF schemes (MPFA), ORSO schemes, and hedge funds aimed at professional investors.

Licensing and disclosure

Managing a securities or futures portfolio needs a Type 9 licence; investment advice needs Type 4; distributing an SFC-authorised fund normally needs Type 1. Marketing must be accompanied by the offering document and the Key Facts Statement.

Performance appraisal

  • Sharpe = (Rp − Rf) ÷ σp - total risk.
  • Treynor = (Rp − Rf) ÷ βp - systematic risk.
  • Jensen's alpha = Rp − [Rf + β(Rm − Rf)].
  • Information ratio = active return ÷ tracking error.

Worked example. A fund returns 12%, the risk-free rate is 3%, fund volatility is 15%, beta to the HSI is 1.2 and the index returned 10%. Sharpe = (12 − 3) ÷ 15 = 0.60. Treynor = 9 ÷ 1.2 = 7.5. Alpha = 12 − [3 + 1.2(10 − 3)] = 12 − 11.4 = +0.6% - real but modest outperformance.

Traps

  • Using beta inside the Sharpe ratio (the classic mix-up with Treynor).
  • Treating SFC authorisation as a quality rating.
  • Comparing fund returns without netting off the total expense ratio.