Pan-asset management concepts in regulating equity investment funds

By Xie Yongtao, AnJie Law Firm
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In September 2016, the Asset Management Association of China (AMAC) launched a new registration platform, dubbed the Asset Management Business Electronic Registration System, which is intended to gradually replace the old Private Equity Fund Registration and Filing System. The change is widely interpreted by industry insiders as a shift of philosophy on the part of the AMAC from private equity fund regulation to general asset management regulation.

Xie Yongtao Partner AnJie Law Firm
Xie Yongtao
Partner
AnJie Law Firm

Q: What do the general business and the regulatory framework under the concept of “Pan-Asset Management” look like?

A: As limited to the concept of supervision over mixed operations in the financial industry, China has yet to make a comprehensive asset management law. The connotation and denotation of “asset management” also has yet to be defined. In the authors view, “fiduciary management” and “investment for third parties” are two important aspects of asset management and a regulatory framework (as shown in the table at left) can be made out based on the nature of equity funds (publicly or privately offered).

Q: According to article 43 of the Law of the People’s Republic of China on Commercial Banks, commercial banks cannot invest in immovable property that is not for their own use, or in non-bank financial institutions and enterprises within China. So, how do commercial banks go about their asset management or equity investment business?

A: In practice, commercial banks can not only offer passive asset management like inter-bank fixed income bonds and non-standardized debt assets, but they can also invest in the shares of asset management plans of securities companies, fund management companies and their subsidiaries, in line with the Circular on Regulating Inter-bank Businesses of Financial Institutions. In terms of equity investment, commercial banks are broadly, albeit indirectly, invested in target companies with IPO potential through such channels as trust plans and fund subsidiaries’ specific asset management plans. Besides, commercial banks are also allowed to directly invest in technology-based innovative businesses through subsidiaries with a mandate to make investments and offer equity investment services to high-net-worth clients with relevant investment experience through co-operation with third-party fund managers.

Q: Can an equity investment fund with structured products be registered with the AMAC?

A: Some equity investment funds often work with trusts, fund subsidiaries, brokers’ asset management plans and banks to become limited partners of partnerships through the above-mentioned channels, or in other ways. However, their registration (or not) with the AMAC must depend on: (1) whether they have any agreement with banks, trusts or insurers that includes any prohibited clause specifying any guaranteed minimum return such as fixed income or any seniority arrangement similar to fixed income; and (2) whether each and every investor behind the funds of the banks, trusts or insurers is found through “penetrative” verification to be a qualified investor. Regulation from the AMAC is tightening up, as is reflected by the launch of the new registration platform. We understand this as the AMAC’s intention to shift towards “functional regulation”.

Q: Does an equity investment fund with structured products have material adverse impacts on a target company’s subsequent IPO or material asset restructuring?

A: As mentioned, some equity investment funds may work with trusts, fund subsidiaries, brokers’ asset management plans and banks to become limited partners of partnerships.

To assess whether such equity investment funds will have the adverse impacts mentioned in the question, the parties must pay attention to Guideline No. 4 for the Supervision of Unlisted Public Companies – Review Guideline for Issues concerning Administrative Licensing Applications of an Unlisted Joint-Stock Limited Company with Over 200 Shareholders. Such equity investment funds registered with the AMAC must be regarded as one qualified investor, or they may be subject to “penetrative” verification, which will have material adverse effects following the exit of the target company.

大资管行业 PAN-ASSET MANAGEMENT INDUSTRY

公募基金行业 PUBLIC FUND INDUSTRY

证券投资基金

Securities investment
funds

《证券投资基金法》 Securities Investment Fund Law

《公开募集证券投资基金运作管理办法》 Administrative Measures on the Operation of Publicly Offered Securities Investment Funds

《证券投资基金管理公司管理办法》 Measures for the Administration of Securities Investment Fund Management Companies

私募基金行业 PRIVATE EQUITY INDUSTRY

私募基金

Private
equity
funds

《私募投资基金管理人登记和基金备案办法》 Measures for the Registration and Archival Filing Regarding Private Equity Fund Managers

《私募投资基金监督管理暂行办法》 Interim Measures for the Supervision and Administration of Private Equity Funds

《私募投资基金信息披露管理办法》 Measures for the Administration of the Disclosure of Information on Private Equity Funds

《私募投资基金募集行为管理办法》 Measures for the Administration of Fundraising Activities of Private Equity Funds

《基金业务外包服务指引》 Service Guidelines for Fund Business Outsourcing

《私募投资基金管理人内部控制指引》 Guidelines for the Internal Control of Private Equity Fund Managers

《私募投资基金合同指引》 Guidelines on Private Equity Fund Contracts

《私募基金管理人登记法律意见书指引》 Guidelines for Legal Opinions for the Registration of Private Equity Fund Managers

证券公司

Securities companies

《证券公司客户资产管理业务管理办法》 Measures for the Administration of the Customer Asset Management Business of Securities Companies

《证券公司定向资产管理业务实施细则》 Detailed Rules for the Implementation of the Targeted Asset Management Business of Securities Companies

《证券公司集合资产管理业务实施细则》 Detailed Rules for the Implementation of the Collective Asset Management Business of Securities Companies

基金子公司

Subsidiaries
of funds

• 《基金管理公司特定客户资产管理业务试点办法》 Measures for Fund Management Companies to Provide Asset Management Services to Specific Clients on a Pilot Basis

• 《证券投资基金管理公司子公司管理暂行办法》 Interim Measures for the Administration of Subsidiaries of Securities Investment Fund Management Companies

信托公司

Trust
companies

• 《信托法》 Trust Law

• 《信托公司管理办法》 Measures for the Administration of Trust Companies

• 《信托公司集合资金信托计划管理办法》 Measures for the Administration of Trust Companies’ Trust Plans of Assembled Funds

银行理财

Bank
wealth management

《商业银行个人理财业务管理暂行办法》 Interim Measures for the Administration of Commercial Banks’ Personal Financial Management Services

• 《商业银行财务业务监督管理办法》 Measures for the Supervision and Administration of Financial Operations of Commercial Banks

保险公司

Insurers

• 《保险资金运营管理暂行办法》 Interim Measures for the Administration and Operation of Insurance Funds

• 《关于保险资产管理公司开展资产管理业务产品业务试点有关问题的通知》
Circular of China Insurance Regulatory Commission on Issues Concerning the Pilot Program of Insurance Asset Management Companies in Assets Management Operations

互联网金融

Internet

finance

• 《网络借贷信息中介机构业务活动管理暂行办法》 Interim Measures for
the Administration of the Business Activities of Online Lending Information
Intermediary Institutions

• 《关于促进互联网金融健康发展的指导意见》 Guiding Opinions on Promoting
the Healthy Development of Internet Finance

Xie Yongtao is a partner at AnJie Law Firm

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