Quick Take: Regulator to Penalize 87 Private Funds

Eighty-seven Chinese private-fund firms were found to have engaged in improper or illegal practices, and will be handed administrative penalties, the China Securities Regulatory Commission (CSRC) said.

Such was the conclusion of an industrywide probe of 328 private-fund firms that the CSRC conducted during the first-half of this year.

The practices in question include marketing private funds to the public, which is not allowed. Private-fund managers were also found not doing enough to assess the risk profile of investors, or using excessive leverage in structured-fund products, the CSRC said late Friday.

Twelve firms were suspected of engaging in more serious violations, including illegal fundraising, embezzlement and insider trading, the CSRC added. These cases will be handed over to the public security bureau for further legal action, it said.

Private funds usually target wealthier individuals capable of withstanding additional risk. In China, such funds are not allowed to sell directly to the public; instead, they can be sold only privately, and to no more than 200 companies or individuals. These private funds invest in a range of products, including securities, derivatives, unlisted companies and other comparatively risky assets.

The State Council, China’s cabinet, is seeking to uproot improper practices in the growing private investment-fund industry to better protect investors and prevent hidden risks from growing. In late August, the State Council and the CSRC issued draft rules aimed at cleaning up the industry. The draft will be open for public comment until Sept. 30.

Contact reporter Dong Tongjian (tongjiandong@caixin.com)