China's securities regulator vows to crack down on private equity funds

This article was originally published on this site

The China Securities Regulatory Commission will work to root out “fake” private equity funds that are actually sold to the general public, Chairman Yi Huiman said in a speech

Topics
China | private equity fund | Ant Group

China’s securities regulator said it plans to rein in the country’s private equity and venture capital funds, stop public offerings disguised as private placements and fight embezzlement of assets.

The Securities Regulatory Commission will work to root out “fake” private equity funds that are actually sold to the general public instead of targeted investors, Chairman Yi Huiman said in a speech to a fund-industry association. The CSRC will also crack down on money managers that illicitly take public deposits, offer loans or embezzle fund assets.


China’s financial regulators have become more assertive in recent months, cracking down in areas from online lending and insurance to initial public offerings and margin financing. Greater oversight of the private equity industry has already kicked off. halted such funds from raising money to invest in residential property developments, people familiar with the decision said earlier this month.

“Private equity funds must return to the defined role of being private and supporting innovation and startups,” Yi said in the speech published on the CSRC website. The regulator will impose targeted policies, support genuine private funds and “resolutely eliminate fake ones to promote an orderly market order and industry eco-system.”

The CSRC has been cracking down on irregularities among private funds — which cover private equity and venture capital funds as well as the Chinese equivalent of hedge funds — with annual inspections of hundreds of players between 2016 and 2019.

The watchdog’s focus has been on issues including compliance, liquidity risks and illegal fund raising. In the 2019 probe of 497 private funds, regulators found malpractices such as borrowing new money to repay existing investors, raising money from disqualified investors and promising guaranteed returns.

Regulators have in the meantime encouraged the development of private equity funds as a channel of direct financing to support the economy. In a speech in December, Yi said the government will help such funds broaden fund-raising channels, and encouraged them to invest in early-stage small firms, particularly those in technology.

The number of registered fund managers has exploded in the past several years, with “false” private equity expanding alongside “true” private equity, damaging the industry, Yi said in his recent speech. The CSRC will strictly regulate fund raising, investment, management and withdrawal of funds within the sector, he said, without providing a timetable for new rules.

China’s private equity and venture capital market is dominated by local names though global funds including Sequoia Capital and IDG Capital have also been active, with some raising funds on the mainland. Hong Kong-based Hillhouse Capital Management Ltd. has grown into a $100 billion behemoth making prescient bets on stocks, venture capital and private equity deals across Asia and particularly in

Investors have been bombarded this year by a sweeping crackdown from Chinese regulators that has targeted a growing list of companies including technology giants Co. and Tencent Holdings Ltd., after-school tutoring firms and ride-hailing platform Didi Global Inc. The moves are part of a broader push for “common prosperity” by President Xi Jinping that has ratcheted up in recent months.

Meanwhile, financial regulators have renewed a campaign to curb credit growth and restrain leverage in the real estate sector to ensure financial stability.

At the end of July, China’s private equity and venture capital funds managed a total 12.6 trillion yuan ($1.95 trillion), tripling from the end of 2016 and becoming the world’s second-largest. The nation’s mutual funds that are sold to the public oversaw 23.5 trillion yuan, the CSRC said.

Dear Reader,

Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.
We, however, have a request.

As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.

Support quality journalism and subscribe to Business Standard.

Digital Editor

First Published: Tue, August 31 2021. 23:43 IST