Li Qiang, the Premier of the State Council, has recently signed an order announcing the publication of the “Regulations on the Supervision and Administration of Private Equity Investment Funds.” These regulations will come into effect on September 1, 2023.
The development and risk prevention of the private equity investment fund industry has been a priority for the Party Central Committee and the State Council. Over the years, China’s private equity investment fund industry has steadily grown, playing a significant role in increasing direct financing and promoting economic development. The purpose of these regulations is to bring private equity investment fund activities under a legalized and standardized framework, encouraging the industry’s healthy and regulated growth, protecting the rights and interests of investors, and promoting the real economy and technological innovation.
The “Regulations” consist of 7 chapters and 62 articles, focusing on various aspects of private equity investment funds.
Firstly, the regulations clarify the scope of application. They encompass private equity investment funds with different organizational forms such as contractual, corporate, and partnership. The regulations apply to private equity fund managers or general partners who manage and conduct investment activities for the benefit of investors using non-public means of raising funds or establishing investment funds, companies, or partnerships.
Secondly, the obligations of private equity fund managers and custodians are explicitly defined. The regulations outline situations where private equity fund managers, as well as their controlling shareholders, actual controllers, directors, supervisors, senior managers, and other relevant individuals, are not allowed. Compliance and professional training in accordance with regulations are required for practitioners. Private equity fund managers must complete registration procedures with institutions authorized by the State Council’s securities regulatory authority. Prohibited behaviors are listed, and the responsibilities of private equity fund managers and custodians are clarified.
Thirdly, fundraising and investment operations are standardized. Private equity investment funds must be raised or transferred to qualified investors, with the cumulative number of investors in a single fund not exceeding the legal limit. Private equity fund managers are required to match different risk levels with private equity investment fund products based on investors’ risk identification and bearing abilities. Supervision and monitoring of private investment funds after they are raised are strengthened. The regulations also specify the scope of property investment and prohibited business activities for private equity investment funds, as well as the investment levels of such funds. Behavioral guidelines for private equity fund managers and practitioners are also outlined.
Fourthly, the regulations make special provisions for venture capital funds. The state provides policy support to encourage and guide venture capital funds in investing in growing and innovative start-ups. Coordination and cooperation between supervision and management policies and development policies are enhanced, and specific conditions for venture capital funds are elaborated upon. Differentiated supervision, self-discipline management, and regulations distinct from other private equity investment funds are implemented for venture capital funds.
Fifthly, the regulations emphasize the need for strengthened supervision, management, and legal responsibility. They stipulate that the supervision and management of private investment fund activities should adhere to the party and state’s guidelines, policies, and decision-making arrangements. The regulatory responsibilities and measures of the State Council’s securities regulatory agency are clarified. A coordination mechanism for information sharing, statistical data submission, and risk disposal is set up between the securities regulatory agency, relevant departments of the State Council, and provincial governments. Legal responsibilities for violations of these regulations are clearly outlined.
The “Regulations on the Supervision and Administration of Private Equity Investment Funds” aim to ensure the standardized and healthy growth of the private equity investment fund industry in China. By providing clear guidelines and regulations, the legitimate rights and interests of investors will be protected, and the industry will contribute further to the real economy and technological innovation.