Mainland China briefing

AMAC clarifies the conditions for contemporaneous management of PE and securities investment funds

On 29 August 2018, the Asset Management Association of China (AMAC) released the Fifteenth FAQ on the Relevant Questions Regarding the Registration and Filing of Private Funds (FAQ) (available here in Chinese), which clarified that the same private fund manager (PFM) may manage both private equity/venture capital funds and securities investment funds provided that it may comply with certain conditions. A manager of both types of funds will be known as an “Asset Allocation Manager”. Previously, the AMAC indicated that a PFM may only manage either private equity/venture capital funds or securities investment funds.

At the time of applying for registration with AMAC, a PFM applicant has needed to identify itself as one of the following: (i) securities investment fund manager; (ii) private equity and venture capital fund manager; (iii) other type of fund manager (which typically referred to QDLP etc.). This has caused difficulties for a PFM applicant that proposes to manage both private equity/venture capital funds and securities investment funds to be able to register with AMAC. Now, that obstacle has been removed; with effect from 10 September 2018, the online AMAC registration portal has been updated to allow an applicant to choose the “Asset Allocation Manager” category.

Conditions applicable to an “Asset Allocation Manager” licence

The FAQ provides that an applicant should satisfy the following requirements in order to register itself as Asset Allocation Manager.

Requirements applicable to its actual controller:

  • at least one entity which is under the common control of the actual controller has registered with AMAC as an ordinary member or as an observant member for more than three years, and on average has an AUM of no less than RMB 500 million in the latest three years; and
  • the actual controller may control only one Asset Allocation Manager, and shall undertake in writing to hold its equity in such Asset Allocation Manager for more than three years upon AMAC’s approval of the registration.

In addition, the applicant should employ at least two senior executives with more than three years of relevant experience or five years of asset management-related experience.

New product - Asset Allocation Funds

An Asset Allocation Manager can launch a fund which actively invests in both listed securities and unlisted securities (Asset Allocation Fund). The FAQ requires that an Asset Allocation Fund should be (i) a close-ended fund with at least two years’ term; (ii) a fund of funds; it shall invest more than 80% of its AUM in funds which are registered with AMAC or China Securities Regulatory Commission or otherwise legally established, and shall not invest more than 20% of its AUM in any single fund. Exceptions may apply with respect to fund of one (single investor fund).

Recent updates on Bond Connect

On 30 August 2018, the State Council announced the exemption of income tax and value-added tax for overseas investors’ interest incomes of their investment in China’s bond market for a period of three years (available here in Chinese).

At the end of August, Bond Connect has fully implemented delivery-versus-payment for settlement, which ensures that payment and delivery of securities occur simultaneously, thereby reducing the counterparty risks.

Asset managers may now aggregate trades of up to 30 different clients, which facilitates trading on the Stock Connect.

China eases foreign ownership limit for banking and asset management industries

On 23 August 2018, China Banking and Insurance Regulatory Commission (CBIRC) issued the Decision of the China Banking and Insurance Regulatory Commission on Abolishing and Revising Some Rules (Decision) (available here in Chinese) which was immediately effective on the issue date.

The Decision provides for the cancellation of three rules; this removes the limit on foreign ownership in Chinese banks and its asset management companies. Under the old rules, the limit on foreign ownership of Chinese banks and their financial asset management companies was set at 20% for a single foreign institution and 25% for total foreign ownership. Foreign institutions can now wholly own a bank and/or its asset management company. The Decision also provides for equal treatment to be given to local entities and foreign owned banks and asset management companies.