Shanghai broadens investment scope of QFLP

From next month, participants in the city's pilot program will be able to buy shares in unlisted companies, participate in private placements by listed companies, and invest in private equity and venture capital funds, mezzanine funds, and unspecified special assets, according to a statement.

This broadening of the investment scope of QFLP was first discussed last year by the Shanghai Municipal Financial Regulatory Bureau. It also mentioned three feasible models, or model participants, for QFLP: a foreign manager operating US dollar-denominated funds; a foreign manager operating renminbi funds; and a domestic manager operating US dollar funds. These are not mentioned in the most recent statement.

QFLP was established in 2011 to ease the movement of foreign capital into renminbi funds. The idea was that foreign managers would be able to establish QFLP fund management companies and QFLP fund vehicles to make investments in China. Capital could be raised onshore or offshore. 

Numerous private equity firms launched funds, hoping these vehicles would not be subject to the same investment approval criteria as offshore vehicles. Shanghai went as far as to say that local treatment would apply if less than 5% of a fund's total corpus came from overseas. However, regulators vetoed the move - all foreign-invested funds would be treated as foreign.

 

 

Since then, QFLP has evolved, and pilot programs across various cities have their own characteristics. Indeed, earlier this year, Shenzhen altered its program so that QFLP funds could invest in other private equity funds rather than just in industrial enterprises.

In addition to QFLP, the Shanghai government highlighted the potential of the Qualified Domestic Limited Partner (QDLP) program, through which foreign fund managers can raise money from Chinese high net worth individuals for investments overseas. In recent years, the number of pilot schemes and the size of quotas have increased nationally.

Established overseas asset managers will be encouraged to apply for the scheme. Shanghai will explore allowing asset managers to use a single entity for multiple onshore businesses, such as QDLP and the wholly foreign-owned enterprise private fund manager (WFOE PFM) program, through which managers can market open-ended funds to qualified local investors.

The city announced a total of 19 measures to encourage global and regional asset managers to set up bases in Shanghai. They included enhancing local back-office services, improving compliance protocols, embracing digitalization, cultivating local talent, and making regulatory processes more efficient, as well as broadening product and service offerings.

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• Topics
• Greater China
• Regulation
• Renminbi fund
• China
• QFLP