CSRC issues Chinese domestic PE fundraising rule
The China Securities Regulatory Commission (CSRC) has issued rules governing the domestic private equity industry following a public consultation.
The draft rules published last month proposed imposing oversight on privately-offered securities funds or "sunshine funds," private equity funds, venture capital funds, and specialist funds such as wine and art funds.
Under the new rules, managers do not require licenses to set up investment funds but they have to register their investment firms with the Asset Management Association of China (AMAC), a self-regulatory organization set up by the CSRC. After completing fundraising, managers must make a filing with AMAC that includes a description of the fund's investment focus and its private placement memorandum.
The rules also include a definition of investors qualified to participate in funds. Investors - including institutional and individual investors committing more than RMB1 million to a privately-offered fund - must meet at least one of three criteria to qualify as LPs: have at least RMB10 million ($1.6 million) in net assets; have individual financial household assets of at least RMB3 million; or have an average annual individual income of at least RMB500, 000 in the last three years.
Private fund managers aren't allowed to send any marketing material to institutions or individuals who are not classified as qualified investors. Furthermore, they can't offer assurances that investments will not incur losses or guarantee any specific returns.
"Generally speaking, under the rules, the number of investors in a private fund may not exceed 49. Moreover, vehicles formed for the purposes of pooling smaller investors to invest in a private fund will be 'looked- through' in counting the number of investors," according to Debevoise & Plimpton.
The CSRC would like to see the industry become self-regulating, with AMAC shouldering the administrative burden. The agency should set up a mechanism to help address investors' complaints, according to the regulator.
AMAC announced registration rules addressing private equity firms' record management, operational standards and information disclosure in January of this year.
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