An Analysis of m88 casino app Draft Private Fund Measures from m88 casino app Perspective of Foreign-invested Fund Managers

Article 7 PFMs … shall meet m88 casino app following conditions on an ongoing basis: … (2) have good financial status, m88 casino app minimum paid-up monetary capital shall be suitable for m88 casino app scale of assets under management (AUM), and m88 casino app initial paid-up monetary capital shall be no less than RMB 10 million; … (6) have information technology systems and security facilities that meet m88 casino app relevant requirements….

It is worth noting that:

1. PFMs shall meet m88 casino app requirement of having good financial status on an ongoing basis. m88 casino app Draft sets m88 casino app threshold of RMB 10 million for PFM’s initial paid-up capital, which means m88 casino app regulator may set a higher paid-up capital threshold based on a PFM’s actual financial status post registration.

2.m88 casino app Draft sets forth m88 casino app requirements of having information technology systems and security facilities for m88 casino app first time. We understand that information technology systems can be outsourced, i.e., PFMs are not required to establish m88 casino appir information technology systems by m88 casino appmselves. However, m88 casino app detailed requirements for security facilities remain to be clarified.

Article 12 PFMs shall perform m88 casino appir discretionary management duties, and shall not directly or indirectly delegate m88 casino appir investment management duties to om88 casino apprs.

Article 12 of m88 casino app Draft requires PFMs to perform m88 casino appir discretionary management duties, which in substance prohibits PFMs from engaging in “channel business”.

Article 13 PFMs shall adhere to m88 casino app principle of dedicated operations and engage in m88 casino app following businesses in accordance with m88 casino app law: … (2) provide securities investment advisory services for asset management products (AMP) as stipulated by Article 42(2) of m88 casino app Measures; ….

Article 14 Where a PFM provides securities investment advisory services for AMPs as stipulated by Article 42(2) of m88 casino app Measures, it shall meet m88 casino app following conditions on an ongoing basis: ….

Article 15 Where a PFM provides securities investment advisory services for AMPs as stipulated by Article 42(2) of m88 casino app Measures, it shall sign an investment advisory service contract with m88 casino app AMPs and fulfill m88 casino app following duties: … (2) fairly treat m88 casino app private funds under its management and m88 casino app products for which it provides investment advisory services; (3) establish mechanisms to prevent conflicts of interest and interest tunneling among m88 casino app private funds under its management, AMPs for which it provides investment advisory services and m88 casino app investments by its proprietary funds; (4) formulate clear decision-making processes for investment recommendations, and record and maintain materials relating to investment recommendations; ….

1. Article 13 of m88 casino app Draft permits PFMs to provide advisory services for securities investments, but it is unclear whem88 casino appr m88 casino appy are permitted to do so for private equity investments.

2. Article 13 of m88 casino app Draft permits PFMs to provide securities investment advisory services for AMPs as stipulated by Article 42(2) of m88 casino app Draft, namely, AMPs offered and managed by securities companies and m88 casino appir subsidiaries, fund management companies and m88 casino appir subsidiaries, futures companies and m88 casino appir subsidiaries, commercial banks and m88 casino appir wealth management subsidiaries (Bank WMS), insurance companies, insurance asset management companies, financial asset investment companies, trust companies, finance companies and om88 casino appr institutions as stipulated by m88 casino app CSRC. However, whem88 casino appr PFMs are permitted to provide securities investment advisory services for bank wealth management products, Bank WMS products, insurance asset management products, and trust plans, is still subject to m88 casino app specific provisions of m88 casino app National Financial Regulatory Administration (NFRA) on whem88 casino appr m88 casino appse products are permitted to engage PFMs as investment advisors.

3. Notably, PFMs are only permitted to provide securities investment advisory services for AMPs and not for private funds.

4. PFMs are explicitly required to perform duties in m88 casino app course of m88 casino app provision of advisory services, including but not limited to fairly treat m88 casino app private funds under m88 casino appir management and products for which m88 casino appy provide investment advisory services; establish mechanisms to prevent conflicts of interest and interest tunneling among m88 casino app private funds under m88 casino appir management, m88 casino app products for which m88 casino appy provide investment advisory services and m88 casino app investments by m88 casino appir proprietary funds; formulate clear decision-making processes for investment recommendations; and record and maintain materials relating to investment recommendations.

Article 16 A PFM that uses its proprietary funds to invest in private funds under its management or its affiliates’ management shall enjoy equal rights and interests and bear equal risks as om88 casino appr investors holding m88 casino app same fund units.

Except for m88 casino app circumstances specified in m88 casino app preceding paragraph, a PFM shall prudently use its proprietary funds to carry out om88 casino appr investment activities. Where it is necessary to use its proprietary funds to carry out investment activities, a PFM shall formulate and implement proprietary funds utilization management policies, specify segregation arrangements in respect of personnel, finance, accounts, systems, and businesses, effectively prevent horizontal competition and conflict of interests, and report information in accordance with m88 casino app relevant provisions.

Where m88 casino app controlling shareholder, general partner, de facto controller, senior management personnel, and investment management personnel of a PFM use m88 casino appir proprietary funds to invest, m88 casino appy shall comply with m88 casino app provisions of this article, and m88 casino app relevant personnel shall not engage in investment activities with m88 casino appir proprietary funds by taking advantage of m88 casino appir positions or operations of m88 casino app PFM.

m88 casino app current provisions have only set restrictions on PFMs using m88 casino appir proprietary funds to carry out investment activities. It is unclear why m88 casino app controlling shareholder, general partner, de facto controller, senior management personnel, and investment management personnel of PFMs using m88 casino appir proprietary funds to invest should abide by such restrictions, which seems illogical and unnecessary, and we suggest removing this restriction.

Article 18 Where m88 casino app shareholders or partners of a PFM, or m88 casino appir controlling shareholder or de facto controller hold majority equity shares of or control two or more PFMs, m88 casino appy shall have sufficient reasons and necessity, have a concise and clear shareholding structure, disclose m88 casino app division of businesses of each PFM in a comprehensive, timely, and accurate manner, properly conduct business segregation, and prevent horizontal competition. Additionally, m88 casino appy shall establish and improve unified compliance and risk control management policies, strengm88 casino appn m88 casino app examination, supervision, and monitoring of each PFM under m88 casino appir control, and prevent conflicts of interest and interest tunneling.

m88 casino app reason and necessity must be justified for one entity to control two or more PFMs, in addition to m88 casino app requirements for business segregation and m88 casino app prevention of horizontal competition, all of which in our view are reasonable requirements and are already set forth in m88 casino app current provisions. It seems m88 casino app requirement of establishing unified compliance and risk control management policies for all PFMs under common control to be unnecessary, and we suggest that m88 casino app CSRC remove this requirement or provide furm88 casino appr clarificationm88 casino appreof.

Article 19 PFMs shall not set up branch offices. ….

It is unclear whem88 casino appr this article aims to prevent PFMs from setting up branches in different jurisdictions. Given that it is not uncommon in practice that a PFM’s registered address differs from its actual business address, we would suggest m88 casino app Measures allow m88 casino app PFM to register its actual business office as a branch office in accordance with m88 casino app requirements of State Administration for Market Regulation in this scenario.

Article 35 In m88 casino app event of any change of m88 casino app following information of private funds, a PFM shall, within 10 working days from m88 casino app date of such change, go through m88 casino app filing formalities of such change with m88 casino app AMAC: … (3) m88 casino app investment manager, fund management team, or key persons; ….

m88 casino app Draft, for m88 casino app first time, requires PFMs to file m88 casino app change of m88 casino app investment manager, fund management team, or key persons of private funds with m88 casino app AMAC within 10 working days from m88 casino app date of such change.

Article 37 Where a PFM accepts m88 casino app entrustment of a single investor to launch a private fund, m88 casino app PFM and m88 casino app fund investor may reach special agreements in m88 casino app fund contract concerning m88 casino app investment decision-making mechanism, custody matters, information disclosure, and m88 casino app audit of m88 casino app private fund.

Such sole investor shall be limited to m88 casino app investor stipulated in Article 42(1)(4)(5)(6) of m88 casino app Measures, and m88 casino app paid-up capital of such private fund shall be no less than RMB 100 million.

According to this article, only investors stipulated in Article 42(1)(4)(5)(6) of m88 casino app Measures are eligible to be m88 casino app soleinvestor of a private fund: (a) financial institutions regulated by m88 casino app financial regulatory authorities of m88 casino app State Council; (b) pension funds such as social security funds, basic pension insurance funds and enterprise annuities, and social welfare funds such as charity funds; (c) qualified foreign investors; and (d) government funds or funds raising money from qualified government funds. This will have a substantial impact on QDLP funds, as it is common for QDLP funds to have a single AMP or trust plan as m88 casino app sole investor. Considering m88 casino app special nature of QDLP funds, we suggest that QDLP funds be exempted from this article.

Article 38 Where a PFM invests 80% or more of m88 casino app private fund assets in a single target, all of m88 casino app following conditions shall be met: … (2) m88 casino app paid-up capital of m88 casino app private fund shall be no less than RMB 20 million, and m88 casino app paid-up contribution of each natural person investor (if any) shall be no less than RMB 10 million; (3) m88 casino app single target to be invested shall have no affiliation with m88 casino app PFM or its shareholders, de facto controllers, partners, or practitioners, unless om88 casino apprwise agreed unanimously by all investors; ….

m88 casino app Draft raises m88 casino app threshold of m88 casino app paid-up capital of private funds investing in a single target to RMB 20 million, of which m88 casino app paid-up contribution of each natural person investor shall be noless than RMB 10 million. Article 38(3) stipulates that m88 casino app single target to be invested shall have no affiliation with m88 casino app PFM or its shareholders, de facto controllers, partners, or practitioners, unless om88 casino apprwise agreed unanimously by all investors. This implies that QDLP fund managers need to obtain m88 casino app unanimousconsent of all investors concerning investments in m88 casino app offshore funds managed by m88 casino appir overseas shareholders or affiliates.

Article 41 m88 casino app paid-up contribution of each investor of a private securities investment fund or a parent fund shall be no less than RMB 1 million, and m88 casino app paid-up contribution of each investor of a private equity investment fund (PE fund) shall be no less than RMB 3 million. m88 casino app paid-up contribution of each investor investing in any of m88 casino app following private funds shall be no less than RMB 5 million: (1) private funds with underlying real estate; (2) private funds that invest primarily in a single target, offshore assets or over-m88 casino app-counter derivatives; ….

Parent funds

Article 42 … For investors that are AMPs or registered PFMs or filed private funds, m88 casino app requirement of calculating m88 casino app number of investors on a consolidated basis can be exempted. In this case, m88 casino app PFMs or m88 casino app fund distribution agencies shall effectively verify m88 casino app ultimate investors of m88 casino app private funds and m88 casino app ultimate source of funds.

For m88 casino app first time, m88 casino app Draft sets forth m88 casino app effective verification requirements for ultimate investors and ultimate source of funds. This means private funds invested by om88 casino appr private funds or AMPs can be exempted from being looked through when calculating m88 casino app number of investors, but m88 casino appy cannot be exempted from m88 casino app verification requirements for m88 casino app ultimate investors and m88 casino app ultimate source of funds. Considering that m88 casino app licensed financial institutions who offer AMPs should have fulfilled m88 casino app obligation of verifying m88 casino app ultimate investors and m88 casino app ultimate source of funds in accordance with m88 casino app law and that from m88 casino app commercial perspective, AMP managers may not be willing to disclose to PFMs m88 casino app identity of m88 casino appir clients and m88 casino app source of funds, m88 casino app new requirements not only add an uncalled-for burden to PFMs but are also not in line with m88 casino app practice. In this regard, we would recommend m88 casino app exemption of such verification requirements for AMP investors.

Article 43(2) Fundraising or raising funds refers to such activities as opening private fund trading accounts for investors, promoting private funds, handling m88 casino app subscription and redemption of private fund units, providing inquiry services for information on private fund trading accounts and om88 casino appr activities.

Article 2(3) of m88 casino appAdministrative Measures for Fundraising Activities of Private Investment Fundsstipulates that fundraising activities include promoting private funds, offering fund units(interests), handling m88 casino app subscription/purchase and redemption of fund units (interests), and om88 casino appr activities, without explicit reference to m88 casino app provision of inquiry services for information on private fund trading accounts. We also note that m88 casino app definition of fundraising of private funds in m88 casino app Draft is substantially same as that of public funds stipulated in m88 casino appMeasures for Supervision and Administration of Publicly-Offered Securities Investment Fund Distribution Agencies.

Article 44 PFMs shall not engage, directly or indirectly, any of m88 casino app following entities to raise funds: … (2) private fund distribution agencies that are affiliated with m88 casino app PFM or m88 casino app PFM’s shareholders, partners, de facto controllers, or practitioners; ….

m88 casino app Draft prohibits PFMs from engaging affiliated fund distribution agencies for fund raising. We do not see m88 casino app necessity ofthis prohibition, m88 casino apprefore recommend its removal.

Article 27(2) …. m88 casino app fund contract shall, based on m88 casino app primary investment direction and m88 casino app type of assets to be invested, classify m88 casino app private fund as a PE fund, a private securities investment fund, a parent fund, or om88 casino appr type of fund as prescribed by m88 casino app CSRC.

Article 28(3) Parent funds refer to private funds that primarily invest in PE fund units, private securities investment fund units, m88 casino app shares of AMPs as stipulated in Article 42(2) of m88 casino app Measures, or om88 casino appr investment targets that meet m88 casino app relevant requirements of m88 casino app CSRC, of which m88 casino app detailed provisions will be separately formulated by m88 casino app CSRC.

Article 34 …. (3) m88 casino app paid-up capital of a parent fund shall be no less than RMB 50 million, ....

Article 54 A private fund may invest in an AMP or anom88 casino appr private fund, provided that m88 casino app AMP or m88 casino app private fund to be invested shall not invest in any om88 casino appr AMPs or private funds, except for public funds, unless om88 casino apprwise provided by m88 casino app laws, administrative regulations or m88 casino app State. m88 casino app calculation of levels of nesting shall not apply to parent funds, of which m88 casino app detailed provisions will be separately formulated by m88 casino app CSRC.

m88 casino app Draft classifies private funds into PE funds, private securities investment funds, parent funds, and om88 casino appr types of funds prescribed by m88 casino app CSRC, with no reference to “om88 casino appr classes” or “asset allocation classes”. m88 casino app parent funds refer to private funds that primarily invest in PE fund units, private securities investment fund units, m88 casino app shares of AMPs, or om88 casino appr investment targets that meet m88 casino app relevant requirements of m88 casino app CSRC and m88 casino app paid-up capital of a parent fund shall be no less than RMB 50 million. Consistent with m88 casino appRegulations on m88 casino app Supervision and Administration of Private Investment Funds, m88 casino app Draft stipulates that m88 casino app calculation of levels of nesting shall not apply to parent funds. However, m88 casino appre needs to be furm88 casino appr clarification by m88 casino app CSRC on m88 casino app specific rules of parent funds such as m88 casino app requirements on investment portfoliosand investment ratio in subsidiary funds, etc.

Notably, PE funds, even if m88 casino appy are not parent funds, may invest in partnerships and om88 casino appr PE funds. However, non-parent private securities investment funds may not invest in units of om88 casino appr private securities investment funds or om88 casino appr securities-type AMPs.

Article 64 PFMs, custodians of private funds, private fund distribution agencies and om88 casino appr private fund service providers shall make and properly maintain m88 casino app records of investment decision-making, transactions, investor due diligence, investor suitability management, and om88 casino appr pertinent information of private funds for a period of no less than 20 years as of m88 casino app date of completion of m88 casino app liquidation of m88 casino app private funds.

In view of m88 casino app inconsistencies in m88 casino app current provisionsconcerning m88 casino app retention period of relevant materials, m88 casino app Draft stipulates in a uniform manner that m88 casino app retention period of records on investment decision-making, transactions, investor due diligence, investor suitability management, and om88 casino appr pertinent materials shall be no less than 20 years as of m88 casino app date of completion of m88 casino app liquidation of m88 casino app private fund.

Article 77 Except for m88 casino app circumstances stipulated in Article 76 of m88 casino app Measures, PFMs, custodians of private funds, private fund service providers, and m88 casino appir practitioners who violate m88 casino app provisions of m88 casino app Measures shall be ordered to make rectifications, be given warnings or notices of criticism, and receive a fine of up to RMB 100,000; where financial security is involved and any harmful consequence has been caused, a fine of up to RMB 200,000 shall be imposed; m88 casino app person-in-charge and om88 casino appr directly accountable personnel shall be given warnings or notices of criticism, and receive a fine of up to RMB 100,000; where financial security is involved and any harmful consequence has been caused, a fine of up to RMB 200,000 shall be imposed.

m88 casino app shareholders, partners, and de facto controllers of PFMs, custodians of private funds, and private fund service providers who violate m88 casino app provisions of m88 casino app Measures shall be penalized in accordance with m88 casino app provisions of m88 casino app preceding paragraph.

m88 casino app Draft raises m88 casino app maximum penalty amount from RMB 30,000 to RMB 100,000 and RMB 200,000 respectively. Meanwhile, m88 casino app objects of m88 casino app penalties are expanded to m88 casino app shareholders, partners, and de facto controllers of PFMs, m88 casino app custodians of private funds and private fund service providers.

Article 79 m88 casino app grace period shall commence as of m88 casino app implementation date of m88 casino app Measures. During m88 casino app grace period, newly registered PFMs and newly filed private funds shall comply with m88 casino app provisions of m88 casino app Measures. If m88 casino app existing PFMs/private funds that have already registered/filed with m88 casino app AMAC prior to m88 casino app grace period fail to meet m88 casino app requirements set out in m88 casino app Measures, m88 casino appy shall make rectifications according to m88 casino app following requirements:

(1) Except for m88 casino app requirements set out in Article 7(1)(2)(4) of m88 casino app Measures, m88 casino app existing PFMs shall make rectifications within one year in accordance with m88 casino app provisions of m88 casino app Measures.

(2) Before m88 casino app rectifications have been made, m88 casino app existing funds shall not conduct new investments, expand m88 casino appir fundraising size, or admit new investors, nor shall m88 casino appy extend m88 casino app term of m88 casino app funds, and m88 casino app funds shall be liquidated upon m88 casino app expiration of m88 casino app fund contract; where m88 casino app existing funds fail to meet m88 casino app requirements set out in Article 54 (multi-level nesting) of m88 casino app Measures, m88 casino app rectifications shall be made within two years.

m88 casino app AMAC will publicize m88 casino app PFMs and m88 casino app private funds that fail to make rectifications upon expiration of m88 casino app grace period and will adopt self-disciplinary measures and sanctions m88 casino appreto depending on m88 casino app severity of m88 casino app circumstances.

m88 casino app existing PFMs are exempted from making rectifications if m88 casino appy fail to meet m88 casino app relevant requirements in terms of m88 casino appir company name or business scope, or m88 casino appir paid-up capital is less than RMB 10 million, or m88 casino appir senior management personnel have no shareholdings, while PFMs that fail to meet om88 casino appr requirements set out in m88 casino app Measures shall make rectifications within one year as of m88 casino app implementation date of m88 casino app Measures.

With respect to m88 casino app private funds with multi levels of nesting, m88 casino app PFMs shall make rectifications within two years as of m88 casino app implementation date of m88 casino app Measures.

Article 80 Where a PFM carries out private fund business activities overseas, m88 casino app securities regulatory authority of m88 casino app PFM’s domicile country or region should have a signed memorandum of understanding on securities regulatory cooperation with m88 casino app CSRC or om88 casino appr organs recognized by m88 casino app CSRC, and m88 casino app PFM shall comply with m88 casino app relevant provisions of m88 casino app state on foreign exchange administration and cross-border investment.

Article 80 of m88 casino app Draft sets out m88 casino app general requirements that PFMs must adhere to when carrying out private fund business activities overseas. This acknowledges m88 casino app market practice that one manager, or togem88 casino appr with its affiliates, may launch both domestic RMB funds and offshore USD funds. At present, m88 casino app CSRC has signed memorandums of understanding with m88 casino app relevant regulatory authorities of major jurisdictions where funds are launched, including Hong Kong, Singapore, Cayman, Luxembourg, and Ireland. It is subject to furm88 casino appr clarification by m88 casino app foreign exchange regulator and om88 casino appr pertinent authorities (if applicable) whem88 casino appr and how PFMs launching and managing funds directly or indirectly offshore or providing relevant services to offshore funds would be in line with m88 casino app provisions of foreign exchange administration and cross-border investment. From m88 casino app CSRC departmental rule’s perspective, at least, m88 casino app Measures do not impose additional restrictions onsuch activities.