On August 21, 2014, China Securities Regulatory Committee (CSRC) promulgated the Interim Supervision and Administration Regulations on Private Investment Funds (the Regulations), which became effective the same day.
Application of the Regulations
The Regulations apply to the investment funds which are established within the territory of the People’s Republic of China by raising funds through non-public offering from investors (the Private Fund).
The Regulations govern the following activities:
- the registration, fund-raising and investment operation of the companies and partnerships which are established through a non-public offering and for the purpose of conducting investment activities, and whose assets are managed by the fund managers or general partners; and
- the Private Fund business of securities companies, fund management companies, futures companies and their subsidiaries (if such business is not otherwise regulated).
Registration and Filing Requirements
The Regulations do not impose any administrative examination and approval on the establishment of Private Fund management agencies and issuance of Private Funds, but requires the Private Fund manager to register with the Asset Management Association of China (AMAC), a national fund industry self-discipline organization formed and authorized by CSRC. In addition, after the closing of a Private Fund, the fund manager also needs to file necessary documents and information of such Private Fund with AMAC, including, among others, the investment strategy and fund size, private placement memorandum or prospectus, the business license of such Private Fund (if established in the form of company or partnership) and governing agreement.
Qualified Investors Only
According to the Regulations, the fund manager can only raise capital from a qualified investor which refers to the entity or individual who invests in a single Private Fund no less than RMB 1 million and meets all criteria as provided under the Regulations with a capacity to identify the risks associated with its investment and to assume such risks (the Qualified Investor). Also, when a Qualified Investor attempts to transfer its fund interest, it has to transfer such fund interest to another Qualified Investor.
In addition, the number of Qualified Investors for a single Private Fund is generally limited to a certain number as specified under relevant regulations. When the Private Fund adopts partnership or contractual vehicles in order to pool more investors directly or indirectly, the Regulations require that the fund manager must “look through” in verifying the qualification of the ultimate investors and also in counting the number of Qualified Investors.
Fund Raising Requirements
With respect to the target audience and manner adopted by the fund manager for raising the Private Fund, the Regulations require that the fund manager and placement agency are prohibited from raising the fund (i) from any entity or individual other than Qualified Investors, or (ii) in a manner of advertising, marketing or promoting on newspaper, radio, television, Internet and other public media, or in seminar, lecture, phone message, social media and email in order to disseminate to non-specific target entities or individuals.
The fund manager should, in accordance with its agreements with investors, disclose to its investors information with respect to the investment of the fund, assets and liabilities status, allocation of return from investment, fund expenses, conflict of interest as well as other material information that may have impact on the fund interest held by investors.
Special Provisions on Venture Capital
The Regulations provide that AMAC may treat venture capital distinctly from other Private Funds in terms of registration and file requirements for the purpose of encouraging the financing activities to unlisted start-up enterprises.
- Interim Supervision and Administration Regulations on Private Investment Fund
- Issuing authority: China Securities Regulatory Committee
- Date of issuance: August 21, 2014 / Effective date: August 21, 2014