CHINA Law and Practice Contributed by: Alan Du and Yiwei Shi, King & Wood Mallesons
2.2 Fund Investment 2.2.1 Types of Investors in Alternative Funds In the PRC, private funds can only be marketed to Qualified Investors, which includes individual investors and institutional investors. The authors see increasingly more individual investors investing in private securities invest - ment funds, and more institutional investors (ie, corporate investors, SOEs, government guiding funds, insurance companies, etc) investing in private equity funds. Institutional investors also have different preferences depending on their type. For example, insurance companies would normally invest in funds established by top-tier fund managers, and corporate investors tend to invest in specific industrial funds for synergy with their own business. 2.2.2 Legal Structures Used by Fund Managers Fund Managers In the PRC, private fund managers are typically structured as limited companies, and some take the form of limited partnerships. Fund Structures For limited partnership funds, fund managers usually also serve as general partners, but there is a trend of separation of the fund manager and the general partner, who is often a subsidiary of the fund manager. For contractual funds, parties to the fund con - tract include investors, the fund manager and the custodian. For limited company funds, a separate fund manager may or may not be one of the share - holders of the fund. Also, it is possible for a lim - ited company to have an internal fund manage - ment team without a separate fund manager.
2.2.3 Restrictions on Investors Private funds can only be invested in by Quali - fied Investors. Qualified Investors are those institutions and individuals who invest an amount of not less than CNY1 million in a single private fund, and accord with the following standards: • with respect to institutions, their net assets must be no less than CNY10 million; or • with respect to individuals, their financial assets (such as bank deposits, stocks and bonds) must be no less than CNY3 million, or their personal average annual income in the last three years must be no less than CNY500,000. Where an investor has no legal personality (such as partnerships and contracts), such investor shall be looked through to verify whether those investors holding interests in such investor are Qualified Investors, with the exemptions appli - cable to certain investors, including: • social welfare funds; • private funds; • bank asset management products; • Qualified Foreign Institutional Investors (QFIIs) and Renminbi Qualified Foreign Institutional Investors (RQFIIs) approved by the CSRC; and • private fund managers and their employees who invest in the private funds under their management. These shall be regarded as Qualified Investors and are not subject to the above “look-through” rules. QFIIs and RQFIIs refer to foreign institu - tional investors that have been approved by the CSRC to make securities and futures invest - ments in the PRC with offshore funds, including
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