Caixin
May 17, 2019 03:14 AM
FINANCE

Securities Regulator Orders Private Equity Corrective Actions

In a nationwide inspection last year, regulators found that more than 30% of private equity firms were in violation of laws and regulations. Photo: IC Photo
In a nationwide inspection last year, regulators found that more than 30% of private equity firms were in violation of laws and regulations. Photo: IC Photo

China’s securities regulator stepped up scrutiny of the private equity industry, issuing warnings and corrective orders in multiple provinces to several private equity firms on a broad range of violations.

The administrative measures are part of a sweeping new round of inspections of the country’s 12.8 trillion yuan ($1.9 trillion) private equity industry that started earlier this year. In a nationwide inspection last year, the China Securities Regulatory Commission (CSRC) found that more than 30% of private equity firms were in violation of laws and regulations.

The Guangdong branch of the CSRC issued correction orders Tuesday to Hengqin Ping An Real Estate Equity Investment Management Co., Hengqin Runhong Investment Management Co. and Huizhou Timesbole Private Equity Investment Management Co. Hengqin Ping An is backed by the Chinese insurance giant Ping An Insurance Co. of China. Hengqin Runhong’s major shareholder is the state-owned conglomerate China Resources Group.

The private equity firms were found to have committed violations including raising funds from unqualified investors, illegal commitments of guaranteed returns and failure to disclose key information to investors and regulators.

Last week, the Qingdao branch of the CSRC issued three warning notices to Qingdao Dingheshuo Investment Co. for failure to fulfill due diligence and for reporting inaccurate information. The company was required to submit a written report by June 5.

The Zhejiang and Hubei branches of the CSRC also recently told private equity investment funds in their jurisdiction to start a comprehensive self-check, including registration records, information disclosure, investor protection, internal governance and risk controls.

According to the notice of the Zhejiang regulator, the self-check will focus on whether some funds, through multiple sales outlets, tried to pitch themselves to the public or to a certain number of investors exceeding the regulatory limit, raised funds from investors who invested less than 1 million yuan to a single fund or raised new funds to repay old ones.

Private equity funds, especially startup investment funds and equity investment funds, play a unique role in promoting industrial transformation and economic restructuring, but the current industry has also exposed many problems, the Hubei regulator said. Illegal fundraising and poor governance have seriously undermined the industry and are jeopardizing the healthy development of the capital market, the regulator said.

As of the end of March, there were 24,361 private equity fund managers registered with the Asset Management Association of China, down 19 from the previous month. Assets managed by these funds reached 12.79 trillion yuan, up 21 billion yuan from February.

Contact editor Han Wei (weihan@caixin.com)

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