China regulator to tighten rules on domestic PE fundraising

Ziqiang Chen, a director with the CSRC's private equity funds supervision unit, said in a press conference that the regulator will soon implement private fund rules first introduced in July 2014. This means tighter oversight on private equity-offered securities funds or "sunshine funds," traditional PE and VC funds, and specialist funds covering areas such as wine and art.

All fund managers are required to disclose fund information to the Asset Management Association of China (AMAC), an industry body set up by the CSRC. The new rules also include a definition of investors qualified to participate in funds. In addition, the CSRC will introduce measures to tighten control over different private fund assets. A data-based risk control system will monitor the industry and the regulator will cooperate with local governments to combat illegal fundraising.

In February, AMAC issued a notice announcing more stringent registration terms for fund managers, including a requirement that all managers sit a qualification exam. Those who fail to pass will be barred from raising money.

The domestic private equity fund industry has developed rapidly over the past two years in China. As of April, a total of 25,800 private fund managers, with RMB5 trillion ($800 billion) in assets, had registered with AMAC, according to the CSRC.

At the same time, the rapid growth of online finance technology, such as peer-to-peer (P2P) platforms, has turned China into a hotbed for illegal fundraising. Notably, Ezubao emerged as one of the country's largest P2P lending platforms, collected RMB50 billion in less than two years from about 900,000 investors through the promise of high returns. It was subsequently revealed to be a Ponzi scheme, with 95% of its investment projects fake. 

"Since 2014, a number of illegal fundraising cases have occurred in Beijing, Shanghai and other Chinese cities. People are raising capital from unqualified investors in the name of private funds. A total of 32 registered fund managers and over 10,000 investors have been involved in these cases," Chen said in a statement.

The CSRC plans to investigate 308 private fund managers in the first half of this year.

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• Topics
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