The Retired Teacher, the PI Form and the Private Credit Fund

Short answer: he may meet the numerical test, but that does not settle the question and it does not remove the suitability obligation.

• The definition sits in the Securities and Futures (Professional Investor) Rules. For an individual, the usual route is a portfolio of at least HK$8 million (securities, deposits, certificates of deposit and similar). Mr Cheung's HK$5.0m of time deposits plus HK$3.6m of listed shares gives HK$8.6m on the face of it, so he is over the threshold.
• His HK$900,000 of MPF accrued benefits should not be counted: the member does not control the portfolio and cannot realise it on demand. Check the firm's own policy, but do not use MPF to push him over the line.
• If he genuinely qualifies, the offer can be made under the professional investor exemption and the fund does not need SFC authorisation.
• What matters is how the classification is made. The firm must be satisfied on reasonable grounds, must explain in what capacity he is being treated and the consequences (loss of certain protections, no SFC-vetted offering document, no SFC supervision of the manager), and must keep records. Asking a client to sign an election form so a product can be sold, with the line 'the paperwork just lets us show you better products', is exactly the practice the SFC criticises. A classification manufactured to fit a particular sale is a conduct risk, not a compliance shortcut.
• Professional investor status is an exemption from the offering restriction. It is not a waiver of the Code of Conduct. Paragraph 5.2 still applies: know the client, know the product, match them, and give accurate, non-misleading information.

Test the four suitability factors - knowledge and experience, financial situation, investment objectives, risk tolerance - against the product.

• Knowledge and experience: no fund purchases, no private credit, no illiquid products. He says he does not follow the details.
• Financial situation: HK$8.6m liquid, HK$18,000 monthly rental income, MPF. A HK$3.0m subscription is 35% of his liquid portfolio in one unlisted, unrated, unregulated fund.
• Investment objectives: he wants more than deposit rates, but describes himself as low risk. Income and capital preservation are the obvious objectives.
• Risk tolerance: low. Private credit carries credit, valuation, liquidity and concentration risk.

Product features that fail the match:

1. Three-year lock-up - no exit, whatever happens.
2. Unlisted loans valued by the manager, not by a market price; NAV is an estimate.
3. No SFC authorisation, no SFC-vetted offering document, no SFC supervision of the manager.
4. '12% p.a. target return' is a projection, not a promise. Presenting it in a flyer without balanced risk warnings is misleading.

Conclusion: the subscription is unsuitable. Disclosure does not cure unsuitability - a signed risk disclosure statement or a signed PI form does not convert an unsuitable product into a suitable one. If he insists, the firm must decide whether to accept an unsolicited instruction, at what size, and with what documented warnings; but the starting position is to decline the HK$3.0m.

What to do now:

1. Stop the sale process. Do not send the PI election form as a way to 'unlock' the product.
2. Complete the KYC record properly: source of wealth, liquid assets excluding MPF, liabilities (does he own his flat? any mortgage?), dependants, time horizon, prior product experience, and the fact that he needs access to capital.
3. Record the advice in writing: the product's features, why it is unsuitable at HK$3.0m, and the alternatives offered.
4. Offer genuine alternatives: an SFC-authorised multi-asset or short-duration bond fund, or a much smaller allocation (say HK$300,000–500,000) that he can afford to lock up, and only if he understands the lock-up and valuation risk.
5. Escalate to your supervisor and Compliance before any subscription, particularly because the fund is unauthorised and the client is being reclassified at the point of sale.
6. If he still wants to proceed: confirm that he genuinely qualifies as a PI, give him the offering document and a clear written explanation of the risks and the loss of SFC authorisation protection, document that the instruction is unsolicited, and obtain approval at an appropriate level. If he does not qualify, the offer cannot be made at all - the offering restriction would be breached.
7. Do not let any promise of '12%' stand in client communications. Correct the impression created by the flyer in writing.

Record: the KYC, the suitability assessment, the alternatives offered, the client's instructions and responses, the escalation and the approval decision.