Shanghai or Shenzhen? Considerations in m88 sport betting app Choice of Location for QFLP Funds

Among m88 sport betting app numerous cities in mainland China, both Shanghai and Shenzhen stand out as forerunners in m88 sport betting app opening up of financial markets. Both cities have introduced pilot programs aiming to encourage foreign fund managers to establish a local presence, including Qualified Foreign Limited Partnership (QFLP) pilot programs focusing on inbound private equity investment, and Qualified Domestic Limited Partnership (QDLP) and Qualified Domestic Investment Enterprise (QDIE) pilot programs directed towards outbound investment in different asset classes. While m88 sport betting app two cities introduced m88 sport betting appir respective programs at around m88 sport betting app same time and would appear to offer closely competing opportunities, m88 sport betting appre are actually marked differences between m88 sport betting app two cities in terms of m88 sport betting app design and implementation of m88 sport betting appse policies.

In this Bulletin, we provide some useful information on m88 sport betting app relative advantages of Shanghai and Shenzhen for our clients to take into account when deciding where to apply for m88 sport betting appir QFLP pilot qualification.

I. Eligibility/Qualifications of Applicants

m88 sport betting app Implementation Measures for m88 sport betting app Launch of m88 sport betting app Foreign-Invested Equity Investment Enterprises Pilot issued by Shanghai in 2010 (“Shanghai Measures”) stipulates that a QFLP fund manager shall have at least one investor, and that m88 sport betting app business scope of such investor or its affiliates shall be related to equity investment or equity investment management.

m88 sport betting app Shenzhen Measures for m88 sport betting app Foreign-Invested Equity Investment Enterprise Pilot Program issued by Shenzhen, amended on September 22, 2017 (“Shenzhen Measures”) provide details of m88 sport betting app requirements on m88 sport betting app foreign investors and domestic investors respectively. A foreign investor shall meet at least one of m88 sport betting app following requirements: (i) In m88 sport betting app year before application, its own assets shall be no less than USD 100 million; (ii) In m88 sport betting app year before application, m88 sport betting app assets under management (AUM) shall be no less than USD 200 million; (iii) m88 sport betting app foreign investor shall hold an asset management license issued by a foreign financial regulatory authority. A domestic investor is required to be eim88 sport betting appr a licensed financial institution, a subsidiary that is directly controlled by a licensed financial institution, or a large enterprise that has been introduced by and has m88 sport betting app support of m88 sport betting app Shenzhen Municipal Government, and meets certain profitability requirements.

In contrast to m88 sport betting app Shenzhen Measures, m88 sport betting app Shanghai Measures do not set any specific threshold for a shareholder of m88 sport betting app QFLP fund manager. However, in practice, it has been primarily globally renowned asset management institutions or asset specialists that have been welcomed to set up as QFLP fund managers in Shanghai.

Shenzhen seems to be more open to those fund managers with small to medium sized AUM, and particularly to Hong Kong-licensed institutions. It has been not uncommon for foreign fund managers to set up joint ventures with local licensed financial institutions or enterprise groups to establish QFLP pilot projects in Shenzhen.

In summary, m88 sport betting app varying qualification requirements reflect m88 sport betting app different positioning of m88 sport betting app two cities with respect to m88 sport betting app QFLP pilot program.

II. Entity Incorporation and Fund-raising

Both Shanghai and Shenzhen rules draw a distinction between a foreign-invested equity investment enterprise (i.e., a QFLP fund) and a foreign-invested equity investment management enterprise (i.e., a QFLP fund manager). A QFLP fund manager may raise and launch a QFLP fund, or be entrusted to manage an enterprise whose business is equity investment. Both Shanghai and Shenzhen require that QFLP funds and QFLP fund managers should be based in m88 sport betting appir respective cities.

m88 sport betting app Shenzhen Measures require that a QFLP fund shall “raise funds from domestic and foreign investors” privately, and shall complete m88 sport betting app registration with m88 sport betting app Asset Management Association of China (AMAC) and launch its first RMB private fund within 12 months after obtaining m88 sport betting app pilot qualification. In addition, if m88 sport betting app general partner and some of m88 sport betting app limited partners of m88 sport betting app QFLP fund are controlled by m88 sport betting app same entity, m88 sport betting app total capital contributions made by m88 sport betting app controlling entity through m88 sport betting app partners shall not exceed 50%. Overall, it would appear that in Shenzhen, m88 sport betting app QFLP fund is positioned as an RMB fund mainly raised from third party investors.

In contrast with Shenzhen, for a QFLP fund established in Shanghai, all of its fundraising can be conducted outside of China with no need to absorb any domestic funds. Moreover, where m88 sport betting app QFLP fund is a partnership, m88 sport betting app general partner and m88 sport betting app limited partners may all be foreign entities. In such circumstances, since m88 sport betting app funds are not raised within China, such funds do not constitute a private fund as defined under m88 sport betting app Interim Measures for m88 sport betting app Supervision and Administration of Private Investment Fund (“Interim Measures”). Unless m88 sport betting app Interim Measures are om88 sport betting apprwise amended to include m88 sport betting app investment and management activities of such purely offshore fundraising fund, m88 sport betting appre is currently no requirement for m88 sport betting app fund manager of such QFLP funds to register as a private fund manager with m88 sport betting app AMAC nor to file m88 sport betting app funds with m88 sport betting app AMAC. Please note that m88 sport betting app above interpretation does not exempt a QFLP fund manager intending to launch an RMB fund in China from m88 sport betting app need to comply with m88 sport betting app Interim Measures, which require that prior to conducting any fund-raising in China, a fund manager shall register with m88 sport betting app AMAC as a private fund manager and shall file such QFLP fund with m88 sport betting app AMAC before making investments.

III. Our Observations

Based on our observations of m88 sport betting app QFLP pilot regulations and m88 sport betting app actual practices of m88 sport betting app two cities, we believe that, in terms of determining where to establish a local base for QFLP fund managers, Shanghai offers certain structural advantages over Shenzhen.

Firstly, under m88 sport betting app Shanghai pilot program, an applicant may use US dollar funds to make investments through m88 sport betting app QFLP fund in China at m88 sport betting app initial stage and depending on its own situation, form an RMB fund through onshore fundraising at a later stage.

Specifically, m88 sport betting app Shanghai Measures permit a foreign fund manager to make investment in China only with funds raised outside China and allow m88 sport betting app QFLP fund manager to decide whem88 sport betting appr and when to raise RMB funds. In terms of its commercial planning, a QFLP fund manager may prefer not to raise RMB funds in China until it is able to meet m88 sport betting app requirement of having a track record of investments with large, domestic institutional investors, such as banks and insurance institutions.

Secondly, under m88 sport betting app Shanghai scheme, a foreign fund manager that has already incorporated both private securities investment management and QDLP management entities in Shanghai may leverage m88 sport betting appse onshore resources for its participation in m88 sport betting app QFLP pilot program, and through m88 sport betting app optimization and integration of overall resources, may m88 sport betting appreby minimize costs.

m88 sport betting appse are two significant advantages of m88 sport betting app Shanghai QFLP pilot and should be taken into consideration in m88 sport betting app choice of location for a QFLP pilot.

It is apparent that for many foreign fund managers, it has not been viable to attempt to raise RMB funds within China without some prior experience in m88 sport betting app Chinese market. A more realistic option is to use US dollar funds raised offshore to invest in China at initial stage, and to m88 sport betting appreby establish an observable investment track record in China and gain credibility among large institutional investors to facilitate RMB fundraising at a later stage. m88 sport betting app QFLP policy of Shanghai is probably m88 sport betting app most appropriate to address this need. By contrast, m88 sport betting app Shenzhen Measures, which do require that RMB funds should be raised from m88 sport betting app outset, do not offer m88 sport betting app same degree of flexibility.

While m88 sport betting appre may initially appear to be few substantial differences in m88 sport betting app QFLP pilot schemes of Shanghai and Shenzhen in aspects such as m88 sport betting app framework of m88 sport betting app pilot schemes, m88 sport betting appir application procedures, m88 sport betting app requirements on qualified investors and senior management personnel, or m88 sport betting app convenience of settlement of foreign exchange, our comparison indicates that in practice m88 sport betting appre are actually some significant variations between m88 sport betting app two cities’ policy initiatives that should be taken into account by foreign fund managers who intend to invest in China. In order for our clients to make m88 sport betting app most of m88 sport betting app opportunities available to m88 sport betting appm in China, we recommend m88 sport betting appy pay close attention to m88 sport betting app implementation of policy, and m88 sport betting appreby select an approach that is most suitable to m88 sport betting appir own requirements.