CSRC Seeks Greater Influence over PE Funds
(Beijing) – The securities regulator has been seeking greater authority over private equity investment, which has been largely governed by the nation's top economic planner, the National Development and Reform Commission (NDRC).
The latest progress made by the China Securities Regulatory Commission (CSRC) includes two policies. One was issued on February 20 and addresses the regulation of privately offered funds that invest in public companies, including funds managed by private equity (PE) and venture capital (VC) firms.
The other was announced two days earlier, opening the door for PE and VC funds to operate public funds.
Under the new policies, PE and VC companies need to register with the Asset Management Association of China (AMAC), a self-regulating organization created by the CSRC in June 2012, if they want to sell public funds. Registration is mandatory if their investments in public companies' securities topped 100 million yuan.
It is unclear yet how the new regulations might fit into the current landscape of PE regulations, which have been dominated by the NDRC through administrative policies.
A CSRC official said negotiations with the commission were underway to avoid regulation overlaps and conflicts, but there was no indication when an agreement would be reached.
The ambiguity resulted mainly from a legal gap in the PE investment area. The Law on Securities Investment Funds does not cover equity investments in non-public firms because, at the time it was enacted in 2004, such investments were rare in the country.
The law was revised last year, but the new version, which comes into effect in June, has left a room for debate among legal experts and financial professional over whether it applies to PE investments in non-public firms' equities.
Meanwhile, the NDRC continues enforcing de facto administration over PE firms by requiring them to register with it or other designated provincial authorities.
However, an increasing number of PE funds have also lined up with the CSRC's regulations by registering with AMAC. They include Hony Capital (Tianjin), the PE arm of Legend Holding, the parent of personal computer maker Lenovo Group, and Eagle Fund Management Co., which had more than 1 billion yuan under management as of December.
Laying the groundwork for running public funds could be a strong incentive for these PE companies to voluntarily sign up with the AMAC, analysts said. Another motivation could be clearing obstacles to alternative PE exiting channels other than initial public offerings, such as private placement, which is regulated by the CSRC, they reckoned.
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