China GPs face tighter disclosure rules

The China Securities and Regulatory Commission (CSRC) finally released its draft regulations that tighten its grip on private equity funds in China.

Private equity firms will be expected to disclose potential conflicts of interests of events that may have a significant impact on their investors.

The draft also says only qualified investor can commit to a private equity fund. To be a qualified investor an LP must have at least $1.6 million in net assets, have individual financial household assets of at least $480,000; or have an average annual individual income of at least $80,000 in the last three years.

LPs must also commit at least $160,000 to a private equity fund, and have relevant risk recognition and tolerance levels, says the draft.

Moreover, the new rules establish limits on fund marketing, including the prohibition of promoting private equity funds to “non-qualified investors” through public forums, brochures and e-mails or mobile messaging. This is intended to correct the danger of private equity funds raising capital from the general public uneducated about the risk involved in this type of investing, a problem that was rife in China a few years ago.

The new guidelines will be effective on August 8.

The CSRC was established as the official private equity regulator in China last year, since indicating it will impose harsher regulatory requirements on investment funds than its predecessor the National Development and Reform Commission.

These new regulations have been raised just a few months after appointing Ziqiang Chen to head the CSRC’s newly-established private equity supervision office amid a restructuring of the regulator’s supervisory departments, pfm reported earlier.