Foreign Private Equity Fund Management In China

Abstract: China Securities Investment Fund Association approved the registration of the three wholly foreign-owned private equity management companies on November 9, 2017. Beijing Docvit Law Firm will discuss and analyze of the special requirements and the establishment issues of the WFOE PE investment fund management companies.

China Securities Investment Fund Association approved the registration applications for private equity management company from the Huili Investment Management (Shanghai) Co., Ltd., Jingshun Zongheng Investment Management (Shanghai) Co., Ltd., and Lu Bo Mai Investment Management (Shanghai) Co., Ltd. At present, there are totally 7 foreign private equity fund managers registered and filed this application.

1. Development History of Foreign Private Equity Funds in China

On June 1, 2002, the China Securities Regulatory Commission ("CSRC") promulgated the "Rules for the Establishment of Foreign-invested Equity Fund Management Companies". China began to regulate the foreign fund management companies.

From June 23 to June 24, 2015, during the seventh round of China-US strategic and economic dialogue, China promised to increase the participation of foreign financial service companies and investors in their capital markets. The measures include: to allow the establishment of foreign or joint venture private equity fund management agencies and these institutes could carry out the private equity fund management business, including the secondary market, in accordance with the financial regulations.

On September 21, 2015, during the Seventh China-UK Economic and Financial Dialogue, The Chinese side has agreed to allow the wholly-owned foreign or joint venture private equity fund institutes to carry out the private equity fund management business, including the secondary market, in accordance with the financial regulations.

From 6 to 7 June 2016, during the 8th round of China-US strategic and economic dialogue, China welcomed the qualified foreign-owned and joint-venture enterprises to apply for registration as a private equity fund management institute and carry out the private equity fund management business, including the secondary market, in accordance with the financial regulations.

June 30, 2016, with the approval of the China Securities Regulatory Commission, China Securities Investment Fund Association released “Questions and Answers regarding Private Fund Registration and Recordation (X)” (hereinafter “Questions and Answers (X)”). It clearly allowed the foreign-owned and joint-venture enterprises to carry out the private equity fund management business in accordance with the financial regulations. At the same time, it clarified the application information requirements regarding the private equity fund manager. The introduction of Questions and Answers (X) is also a breakthrough for the supervision of foreign private equity fund managers.  

2. The Special Requirements For The Foreign Private Equity Fund Managers

(1) The wholly foreign-owned enterprise should be corporate legal person

According to provisions, wholly foreign-owned and joint venture private fund management agencies that conduct private fund management business in China shall be registered with the China Securities Investment Fund Association as the manager of private equity fund and shall meet the following conditions: (a) the private equity fund management agency is a company established in China.

(2) The shareholder and actual controller of a wholly foreign-owned enterprise shall be the approved by its local authorities.

The overseas shareholders of the private equity fund management institute shall be approved or permitted by the financial regulatory authorities of the country or region where they are located, and the securities regulatory authorities of the country or region where the overseas shareholder is located have signed the memorandum of understanding on securities regulatory cooperation with the CSRC or other institutions approved by the CSRC.

3. The Establishment of Foreign Private Equity Fund Managers

According to Questions and Answers (X), the qualified foreign private equity fund managers can carry out private equity fund investment management businesses in mainland China without restrictions on the proportion of foreign investment.

All in all, the development of China's financial and capital markets shows a good prospect. The approval and registration of foreign private equity fund managers is an important manifestation of the gradual opening-up of China's financial and capital markets. The Financial and Capital Market Team of Beijing Docvit Law Firm will also continue to focus on the relevant information on foreign private equity fund managers and provide professional interpretation.

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