China announces new rules for GPs listing on New Third Board

Private equity firms applying for a listing on the NEEQ, or New Third Board, must have been in operation for at least five years, and completed investing and exited at least one investment fund, according to a statement posted on the NEEQ's website on May 27.

The new rules require private equity firms to earn at least 80% of their income from management fees and carried interest. In addition, the PE firms cannot invest more than 20% in each fund as a GP commitment. While a VC firm should manage at least RMB2 billion ($303 million) in total assets over the previous three years, a PE firm should have more than RMB5 billion in assets over the same period. All listing candidates have to register and disclose operational information to the Asset Management Association of China (AMAC), an industry group set up by the Chinese Securities and Regulatory Commission (CSRC).

Private equity firms, whether already listed on the board or planning to list, will not be allowed to use the capital raised from the New Third Board to directly buy stocks traded on the Shanghai and Shenzhen stock exchanges, or invest in securities-related funds, the statement said.

The CSRC suspended listings and fundraising by domestic PE firms on the NEEQ in December, citing the concerns that capital raised was not being used in the real economy. The regulator also said it would investigate listed firms' use of the proceeds.

On a separate statement last Friday, the CSRC said that private equity and hedge funds would be allowed to act as market makers on the New Third Board. Previously, only Chinese securities firms could act as market makers.

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• Topics
• Greater China
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• Renminbi fund
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• China
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