CHINA Law and Practice Contributed by: Alan Du and Yiwei Shi, King & Wood Mallesons
Private equity funds Private equity funds must mainly invest in unlist - ed equity; investing in loans and other fixed- income investments has generally been banned by the AMAC, which holds the general view that any investment looking for fixed income can - not be the investment target of private funds. Specifically, private funds are not permitted to directly or indirectly make investments that are prohibited or restricted by the government, or that are inconsistent with national industrial poli - cies, environmental protection policies or land administration policies, except for an investment in listed securities. Investing in loans (including disguised loans) and offering guarantees is also prohibited by the AMAC. However, for the purpose of equity investment, if the borrowing or guarantee period is less than one year, private equity funds may provide loans or guarantees to portfolio compa - nies, except for a real estate pilot fund, which may provide loans or guarantees to portfolio companies without limitations on the period. In addition, private funds may not invest in credit assets such as factoring assets, financial leasing assets or pawn assets, nor make investments that have unlimited liability. Asset Protection In general, unless otherwise agreed in the funds contracts of certain funds satisfying AMAC cri - teria, private funds may have fund custodians. Where there is no custodian, the funds contract should explicitly provide measures to protect fund assets and a dispute resolution mecha - nism. In practice, the majority of private funds have custodians. In addition, in line with investor protection, where private funds conduct related-party transac - tions (ie, transactions that involve the private
occur, private fund managers are required to report to the AMAC within ten business days and to make a disclosure to investors. In accordance with the AMAC’s rule, significant matters specifi - cally include: • change of the fund manager and the custo - dian; • major changes to the fund contract; • change of type of private fund; • change of fund service institutions; and • other events that may have a significant impact on the continued operation of the fund, the interests of investors or the net asset value of the fund. 2.3.11 Approach of the Regulator The AMAC accepts telephone enquiries as well as email enquiries regarding the relevant regu - lations and compliance requirements. Face-to- face meetings are generally not available. 2.4 Operational Requirements Restrictions on Investments in Private Funds In general, private funds are not permitted to directly or indirectly make investments that are prohibited or restricted by the government, or that are inconsistent with national industrial poli - cies, environmental protection policies or land administration policies, except for an investment in listed securities. Private securities investment funds For private securities investment funds, invest - ment is limited to: • listed stocks;
• bonds; • futures; • options;
• other securities investment funds; and • other assets recognised by the CSRC.
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