Chinese probe uncovers irregularities in one-third of local GPs

The China Securities Regulatory Commission (CSRC) looked into 4,374 funds with a combined RMB2.08 trillion ($301 billion) in assets under management, accounting for around 17% of the total capital held by China’s private equity industry. These funds are managed by 453 different firms, of which 281 are traditional PE and VC players and 119 are groups that raise private capital for public market investments.

Irregularities were identified in 139 firms. Ten were engaging in illegal fundraising activity and misuse of proceeds and 48 that conducted “cash pool” practices that were outlawed under new asset management rules issued earlier this year. Previously, commercial banks could invest in funds using cash pools raised from the sales of short-term wealth management products. Substandard information disclosed and GPs participating in businesses irrelevant to private equity were among the other problems.

The CSRC said the overall level of compliance has increased, but it would increase scrutiny of the industry with a view to eradicating behavior deemed to be “disruption to the market order.” It also plans to enhance its risk monitoring for fund products.

China had 24,191 registered PE managers in China and 70,000 fund products at the end of last year. This compares to 30,031 fund products across 2,997 registered managers in the US, the world’s largest asset management market.

The rapid growth of the industry has prompted concerns about the level of financial risk to which a relatively inexperienced and retail-oriented investor set is being exposed. The Asset Management Association of China (AMAC) – an industry association that reports to the CSRC – said it “lost contact” with over 163 private fund institutions in the first half of 2018, a 70% increase on last year. An unspecified number of these missing managers had fled with investors’ money.

In addition to clamping down on bank participation in private equity, regulators have rolled out measures including the suspension of new fund registrations in cities such as Guangzhou and Xi’an, while preferential policies local governments used to attract GPs have been stopped. In early October, the CSRC said it would publish blacklists and whitelists of larger private equity firms, based on their level of compliance, according to Peiyang Xu, deputy director of CSRC’s private equity department.

• Tweet  
• Facebook  
• LinkedIn  
• Google plus  
• Save this article  
• Send to  

• Topics
• Greater China
• Regulation
• GPs
• Renminbi fund
• China
• CSRC
• Renminbi