A New Private Funds Regulatory Framework for the PRC
Keith T. Robinson, Karl J. Paulson Egbert, Jingzou Tao and Gregory Louvel
For years, the Chinese private fund industry has operated in regulatory limbo, but a recent series of legislative and regulatory actions should provide greater certainty and help create a more favourable environment for the incipient hedge fund industry in the People’s Republic of China (“China” or the “PRC”). Please note that these changes, which are summarised below, apply only with respect to domestic PRC private funds, although non-PRC private fund managers may wish to bear them in mind as they seek to access China’s burgeoning investor base.
The new regulatory framework
The cornerstone of the newly designed regime is a set of amendments to the Securities Investment Fund Law of the PRC and accompanying regulations (collectively, the “Amendments”)1 that took effect on June 1, 2013. Previously, PRC law explicitly regulated only publicly-offered securities investment funds, causing private funds (both domestic and non-PRC) to operate in an opaque regulatory environment. The Amendments address this uncertainty, at least in part, by providing a framework applicable to private funds that invest in publicly-offered securities, such as so-called ‘sunshine hedge funds’. In addition, the China Securities Regulatory Commission (CSRC) and the Asset Management Association of China (“AMAC”, the self-regulatory organisation of the fund industry in China), released draft rules on private fund registration and reporting that are intended to complement the Amendments. Although these draft rules are not yet final, most industry participants appear to be proceeding on the assumption that the draft rules will be implemented substantially as proposed.