News & Analysis

Do China’s new PE rules apply to real estate?

Lawyers interpreting China’s new private equity registration rules have reached a consensus on whether they apply to other asset classes like infrastructure and real estate.

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After some initial uncertainty, legal experts feel confident that China’s new fund registration rules should be followed by real estate and infrastructure managers.

The rules apply to local managers raising yuan-denominated vehicles and call out private equity funds, debt funds, venture capital funds and certain other securities and derivatives specified by the China Securities Regulatory Commission (CSRC).

“There is no specific mention of real estate funds or infrastructure funds in these rules, but given that they aren't specifically excluded we would interpret that they are under the same supervision scheme, provided that they are privately raised,” said one Singapore-based funds lawyer.

After a close inspection of the rules, other industry lawyers agreed with that conclusion: “The same requirements under the rules apply to all types of assets classes that are privately raised in China, except the rules provide that venture capital funds will have special, favorable treatments from a regulatory perspective,” said Debevoise & Plimpton funds lawyer Serena Tan, who is based in Hong Kong. Tan added the industry is expecting the CSRC to issue separate rules to detail what that special treatment for venture capital funds will be.

The inclusion of all private fund asset classes brings the benefits of regulatory certainty in China to a wider population of asset managers. In a recent comment letter, pfm argued that the new regime “should do a lot to stamp out fraudulent fundraising activity, which will help reputable GPs whose image has been tarnished by less disciplined managers.”

The rules include specifications on reporting, saying that managers do not have to get prior approval for establishing a fund, but must register with the Asset Management Association of China (AMAC) once the fund is closed.

Restrictions have also been placed on fund marketing, with no public solicitation permitted, and funds only allowed to market to what would be considered a “qualified investor”.