China private fund firms face clampdown: sources

The Beijing Administration of Industry and Commerce has reportedly suspended registrations of private investment firms as part of a wider tightening of regulations.
China private fund firms face clampdown: sources

Registrations of China private fund managers have reportedly been suspended in Beijing since Saturday as part of a tightening of industry regulation – which is viewed by some market observers as a positive move.

According to local media reports yesterday, the Beijing Administration of Industry and Commerce (BAIC) on January 9 started to suspend approvals of firms registering using terms such as “investment”, “asset”, “capital”, “fund”, “wealth management”, “financial leasing” and “non-financing guarantee”.

BAIC is also said to be rejecting new company registrations incorporating terms such as “project investment”, “investment management”, “investment consulting”, “investment advisory”, “capital management”, “asset management”, “financial leasing” and “non-financing guarantee”.

It is not explicitly clear that private fund managers in particular are being targeted, but these are terms that the Asset Management Association of China (Amac) requires private managers to include in their registration documents. As there is no specific category for such firms in the regulations, suspending registrations by key words is one way to enforce such suspensions.

A Shanghai-based source told AsianInvestor said he believed the reports were accurate, but said it was unlikely BAIC would make an official announcement.

“Amac is rumoured to have tightened its registration policies in recent weeks too," he added. "If it is true, this will be a concerted effort in regulating the industry and I would expect Shanghai, Shenzhen and other cities to follow.”

BAIC could not be contacted by press time.

A private fund manager must currently register for a business licence at BAIC at city level and then register its licence with Amac. These rules apply to both private equity (PE) and private securities fund managers, the latter being China’s equivalent of hedge funds.

The reported suspension of approval follows a series of Amac moves to tighten regulation of the private fund industry in recent months. The industry body, supervised by the China Securities Regulatory Commission, on December 16 started to collect opinions on proposed rules that aim to regulate private product fundraising and sales activities, after receiving 143 complaints about improper sales and marketing activity in the first 11 months of last year.

Yesterday Amac also announced that 16 private managers’ registered details were invalid. This came after the association said on January 5 that all private fund managers would have to update registered information – including assets under management and investor bases of their eligible funds – within 10 days of the end of each quarter; and to update information of companies’ partners, senior managers and other staff within 20 days of the end of their financial year.

Alexis He, an analyst at Shanghai-based consultancy Z-Ben Advisors, said: “All these look like fragmented actions, but the common goal is to standardise the whole industry. I think the regulator is improving its registration and reporting approach, learning from the experience of hedge fund regulation in developed markets.

The regulator has accelerated the process of standardising the private fund industry in recent months, added He. “It is positive for the industry because these new rules will not mean many changes for the top private fund managers.”

China’s private funds industry has been booming since Amac started its registration approach in February 2014. A total of 20,372 private managers (44% private securities managers, 47% PE managers and 6% venture capital managers) had completed registration as of the end of September 2015, according to Amac. That is up from 4,955 registrations (29% private securities managers, 59% PE managers and 9% VC managers) as of end-2014.

The private fund industry’s total assets stood at Rmb3.89 trillion ($591 billion) at the end of September 2015, an increase of 160% from the Rmb1.5 trillion at end-2014, according to Amac. 

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