Under the PRC Securities Investment Funds Law, a private investment fund is required to be filed with the Asset Management Association of China (AMAC) to be promoted and operated within mainland China.

On 12 January 2018, AMAC published the Notice for Filing of Private Investment Funds (the Notice) (available here in Chinese), which announces that AMAC will not accept any new filing applications for products that are not private investment funds in nature. AMAC clarifies that private investment funds are investment vehicles by nature, which are to be distinguished from lending vehicles. Products that are not recognised by AMAC as private investment funds (and thus the filing of which will not be accepted) include products (i) whose underlying assets are or are derived from private loans, peer-to-peer lending loans, crowd funding loans, micro loans, guarantees, etc., (ii) that directly or indirectly engage in lending activities by providing certain loans, and (iii) that engage in (i) or (ii) indirectly through any special purpose vehicle.

It is believed that the above publication is to curb the current practice whereby some asset managers utilise a private investment fund as a vehicle for housing non-standardised debt assets, to avoid regulations. AMAC has not provided a definition of non-standardised debt assets. The China Banking Regulatory Commission (CBRC) referred, in a notice issued in 2013, to “non-standardised debt assets” as bonds/loans which are not traded on China’s Interbank Bond Market or any mainland China stock exchange (with, therefore, relatively higher risks and lower liquidity). However, this may only be used as a point of reference in the context of the Notice, since AMAC is regulated by the CSRC, not the CBRC.

It should also be noted that not all kinds of non-standardised debt assets are considered by AMAC to be prohibited investments. After issuing the Notice, AMAC published an article (available here in Chinese) which clarified that private investment funds may still invest in non-standardised debt assets such as mezzanine debt, convertible debt, non-performing loans, and accounts receivable.

In designing products, domestic private fund managers should ensure that private investment funds have the essential features of investors sharing profits and risks of the underlying investments, and should not provide to any investor a guarantee of investment principal or profits.