Self-regulatory management in the private fund industry is centred on information disclosure, and is mainly reflected as information disclosure made during the fundraising period and subsequent operation of funds under the self-regulatory system of the Asset Management Association of China (AMAC).
This article aims to sort out information disclosure-related matters of private funds –including the contents and timing of information disclosure – so that fund managers can be familiar with the daily compliance requirements of the AMAC.
During the fundraising, fund managers should pay special attention to the information that shall be disclosed, and that shall not be contained in presentation materials for fundraising. Such information is summarized as follows:
Information that shall be disclosed
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(1) Basic information of the fund, including the name, structure, type, place of registration, total fundraising scale, minimum subscribed contribution capital amount, mode of operation, term, contact person and contact information, and custodian of the fund.
(2) Basic information of the fund manager including the name, place of registration/principal place of business, date of establishment and organizational form of the fund manager, and the registration and filing by the fund manager with the AMAC.
(3) Investment information of the fund, including investment objectives, investment strategies, investment orientation, performance comparison benchmark and risk-return characteristics of the fund.
(4) Fundraising period of the fund, including the first closing date and the final closing date of the fund (if applicable).
(5) Valuation policies, procedures and pricing models of the fund.
(6) Key terms of the fund contract including the capital contribution, distribution and loss assumption, management fee rate and calculation method, cost assumption method of the fund, business report and financial report submission system of the fund.
(7) Purchase and redemption arrangements of the fund.
(8) Description of the credit standing of the fund manager for the most recent three years.
Information that shall not be contained
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(1) Prediction of the investment performance.
(2) Promises on profits or losses assumption in violation of rules.
(3) Congratulations, compliments or recommendations to the fund manager from any natural person, legal person or other organization.
(4) Aspersions on other fund managers, fund custodians or fund sales institutions.
(5) Performance comparison using data sources and methods that are not comparable, fair, accurate or authoritative, or arbitrary use of relevant expressions such as “the best performance” and “the largest scale”.
(6) False records, misleading statements or material omissions.
Operation stage
After completion of the filing for the fund, the AMAC imposes information disclosure requirements on a private fund manager/private fund, mainly at two levels.
First, a fund manager is obliged to annually and quarterly update the AMAC on the operation of such manager and the private fund managed by it, and shall, in a timely manner, report any significant change of the manager/fund.
Such updates of the fund manager/fund shall be made via the Asset Management Business Electronic Registration System. The AMAC requirements on information disclosure items, and timings of a private fund manager and a private equity fund (which may be relaxed in practice), are correspondingly sorted out as follows: (1) the information of the fund manager shall be updated on an annual basis, within 20 working days of the end of each year; (2) the audited annual financial report of the fund manager shall be submitted prior to the end of each April; (3) information of the private fund shall be updated quarterly, and may, in practice, be updated prior to the end of the month following the end of each quarter; (4) any significant change in the fund manager shall be disclosed within 10 working days from the date of such change; (5) any significant change in the private fund shall be disclosed within five working days from the date of such change.
Second, information disclosure shall be made to investors of the fund, and submitted via the Private Fund Information Disclosure Backup Platform of the AMAC, for the record.
The private fund manager, as the party obliged to make information disclosure, shall disclose information to investors in accordance with relevant regulations and fund contracts. Meanwhile, semi-annual and annual reports shall be submitted via the Private Fund Information Disclosure Backup Platform of the AMAC, for the record.
Disclosure requirements on a private equity fund are correspondingly sorted out and summarized as follows: (1) disclosure of the reports of the private equity fund for the first and third quarters is encouraged/optional; (2) the semi-annual report of the private equity fund shall be submitted via the Private Fund Information Disclosure Backup Platform prior to 30 September of that year; and (3) the annual report of the private equity fund shall be submitted via the Private Fund Information Disclosure Backup Platform prior to 30 June of that year.
Failure to make disclosure
A private fund manager will be included in the list of abnormal organizations by the AMAC if the private fund manager fails to submit and update the quarterly, annual and significant event information via the Asset Management Business Electronic Registration System in a timely manner two times, or to submit the audited annual financial report of the fund manager prior to the end of each April as required, or to submit semi-annual and annual reports and other information disclosure reports of a private equity fund (including venture capital fund) for 2018 and subsequent periods via the Private Fund Information Disclosure Backup Platform for the record, in a timely manner, two times.
If a fund manager is included in the AMAC blacklist of enterprises with irregular operations, the AMAC will suspend the application for fund filing until the update or submission is completed. In addition, even if the update/submission is complete, it takes at least six months for the fund manager to restore to the normal announcement status on the AMAC website. The irregular status will have a significant negative impact on the credibility of the fund manager.
Catherine Chen is a partner and Huang Yi`an is an associate at Zhong Lun Law Firm
Zhong Lun Law Firm
28, 31, 33, 36, 37/F, SK Tower
6A Jianguomenwai Avenue
Chaoyang District, Beijing 100022, China
Tel: +86 10 5957 2288
Fax: +86 10 6568 1022
E-mail:
catherinechen@zhonglun.com
huangyian@zhonglun.com
www.zhonglun.com
