CHINA Trends and Developments Contributed by: Richard Guo, Zhen Chen, Zhiyi Ren and Sherman Deng, Fangda Partners
active participation in internal governance and pro - motion of businesses of the portfolio companies. In recent years, RMB buyout funds have expanded con - spicuously, with fund sizes ranging from billions to tens of billions. Alongside buyout funds, other innovative investment structures are emerging. For instance, case funds for a single asset’s majority stake may be used together with co-investment transactions and continuation funds. Hybrids of case fund transactions, co-invest - ments, roll-overs, and continuation funds address the diverse needs of large institutional investors, allowing them to increase exposure to preferred sectors while maintaining continuity with their commitments in flag - ship funds. Single-Asset Funds and Co-Investments The appeal of single-asset funds, often called case funds, is straightforward. LPs get clearer exposure, faster decision cycles and more accurate fee and expense budgets than blind-pooled funds. GPs get auditable performance samples in challenging fun - draising climates. The unavoidable trade-off is the risk of concentration, which needs to be addressed in decision-making, disclosure and exit design in the formation of the single-asset funds. On the co-investment side, demand has risen among FoFs, government-backed and SOE investors and industrial LPs seeking to precision-weight specific sectors. The compliance baselines are clear: where an arrangement is substantively a fund pooled with money with multiple unaffiliated parties, it should be registered or filed as a private fund with AMAC even if no management fee or carried interest is charged; and allocation between flagship vehicles and co-invest - ment vehicles should be set ex ante in their consti - tutional documents to avoid governance ambiguities about capacity limits and equitable treatments. Investor “Democratisation” and the Channel Logic of QDLP In recent years, perpetual fund products have ena - bled firms to target a potentially huge market, particu - larly individuals with USD1 million to USD5 million in investable assets. At the same time, Chinese individu - al investors are actively seeking cross-border alterna -
tive investment opportunities. However, no regulatory infrastructure existed to govern this type of invest - ments until about a decade ago, when certain local governments rolled out a pilot programme known as the “Qualified Domestic Limited Partner” (QDLP). QDLP products are typically marketed under a B2B model through “wealth managers”, as opposed to a B2C model. These entities include commercial banks, securities firms, mutual fund managers, trust compa - nies, and licensed wealth management firms, each subject to slightly different requirements regarding the types of ultimate investors they can approach. While the onshore feeder funds in these structures link to offshore master funds, they must nonetheless comply with the full set of PRC private fund regula - tory rules. QDLP fund managers must opt for either the “PE/VC” category or the “securities investment” category, a choice that shapes valuation, disclosure and liquidity engineering in evergreen or semi-liquid products. Distribution of QDLP funds remains primar - ily B2B with licensed intermediaries’ products such as trust schemes and privately placed asset manage - ment schemes as the direct investors, while licensed intermediaries’ distribution of the aggregator products is mainly B2C, with mostly high net worth individuals (HNWIs) as underlying investors. Despite the widely adopted mode of licensed inter - mediaries’ products with HNWIs as investors to QDLP funds, entry barriers for using the licensed intermedi - aries are rising. The Measures on Commercial Banks’ Agency Sales Businesses (due to become effective on 1 October 2025) set out hard standards for underlying private fund managers’ AUM, year of registration and disciplinary history, with a phased wind-down of exist - ing products that fail to comply with the new regula - tions. If diversification requirements on trust schemes’ investments are further formalised, the space for pure - ly “pass-through” structures will be further narrowed down, nudging product design toward those which are more self-supported by the QDLP sponsors. Cross-border compliance has also come under closer scrutiny by China’s regulators. The amended Anti- Money Laundering Law sets clear boundaries for foreign authorities directly compelling Chinese finan -
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