Interpretation of nine key points on the registration and filing of managers in the Measures for The Registration and Filing of Private Investment Funds (Draft)

By Yao Zhang

On December 30, 2022, AMAC amended the Measures for Registration and Filing of Private Investment Fund Managers (Trial Implementation) (hereinafter referred to as the Measures for Filing of Private Investment Funds) issued in 2014, renamed as the Measures for Registration and Filing of Private Investment Funds, and drafted supporting guidelines. In addition to the revised instructions, Including Guideline No. 1, “Basic Business Requirements”, Guideline No. 2, “Shareholders, partners and actual Controllers”, and Guideline No. 3, “Legal representatives, senior managers, managing partners and their appointed representatives”, to solicit public opinions.

Compared with the Measures for Private Equity Filing, the Measures for Private Equity Investment Fund Registration and Filing (Draft for Public Comments) (hereinafter referred to as the Measures for Registration and Filing (Draft for Public Comments) or the “Draft for Public Comments”) has more rigorous logic and complete content. The draft for comments is integrated and reconstructed based on the practical experience of private fund manager registration and filing and fund product filing in 2014. On the basis of reaffirming the basic requirements for the registration and filing of private funds, strengthening the core points and improving the transparency of self-regulation of the industry will help promote the standardized, systematic and healthy development of the private fund industry.

Due to limited space and the reasons for highlighting the focus, this paper only sorts out and interprets the main differences between the registration and filing process of private fund managers in the Measures for Registration and Filing (Draft for Comments) and the current standard.

I. Applicable subjects of the Measures for Registration and Filing (Draft for Comments)

In the registration and filing part of the manager, the listing method of “positive expression” in the Instructions to the Registration of Private Fund Managers is changed to “negative expression”, that is,“any person under any of the following circumstances shall not serve as a private fund manager”.

The author believes that the adjustment of this expression is to strengthen the “continuous requirement”, that is, for the surviving private fund managers, it is not “prepared”, but to emphasize that those who do not meet the conditions are not allowed to serve as managers, so as to highlight the idea of continuous supervision during and after the event. Based on this, the author believes that the stock of private equity institutions should also be implemented in accordance with this requirement.

II. Requirements on the establishment years of the registered subject

The institution requesting the registration of a private fund manager shall be established for the purpose of carrying out private fund management business, and shall request the registration of a manager within one year from the date of registration, except for those that need to be postponed due to policy changes of relevant state departments.

The introduction of this content, limited the “old shell for new” channels. On the one hand, to avoid the possible historical legacy problems caused by the complex historical evolution of the organization; On the other hand, it has cracked down on the behavior of some “black intermediaries” hoarding shell resources for trading. At the same time, it is emphasized that the registration and establishment of “private fund management” institutions should be timely and actively registered and put on record.

III. Paid-in capital requirements

Paid-in capital shall not be less than 10 million yuan, which is significantly higher than the current standard.

The form of capital contribution is still in currency; It may not entrust funds, debt funds and other non-self-owned funds to make capital contribution. The manager needs to ensure that there is sufficient paid-in capital to ensure the effective operation of the institution according to its own operating conditions and business development. The current standard is at least 6 months of normal operation, which is adjusted to the minimum paid-in capital of 10 million yuan in the Measures for Registration and Filing (Draft for Comments), which has a relatively great impact.

The author hereby reminds each application institution to make paid-in capital to the institution in compliance. After the completion of capital contribution, the paid-in capital shall not be withdrawn, and the paid-in capital shall be used for the daily operation expenses of the institution. In addition, appropriate investment of its own funds can be carried out, and strict separation and independent operation of its own funds and fund property should be ensured.

IV. Shareholding requirements for senior executives

The legal representative, managing partner and its appointed representatives, and senior management personnel responsible for investment management shall hold a certain proportion of the equity or property shares of the private fund manager in total, and the total paid-in capital shall not be less than 20% of the paid-in capital of the private fund Manager. Or no less than 20% of the minimum paid-in capital (RMB10 million) of the manager as stipulated in the draft for Comments.

This requirement is to strengthen the interest binding between the core personnel of private equity business and managers, on the one hand, strengthen and encourage the subjective initiative of the core business personnel, and ensure the consistency of interests; On the other hand, it can also play a certain role in curbing the attachment of senior executives. At the same time, AMAC, taking into account various background factors, exempts private fund managers with financial institution holding/state-owned enterprise holding/foreign holding of no less than 25% from the above executive shareholding requirements.

V. the stability of the office space again

Sites with insufficient stability such as shared space are clearly not allowed to be used as business sites; The lease term of the site shall be more than one year.

The site requirements are relatively clear and will not be described here.

Vi. Experience and working requirements of the actual controller

The controlling shareholder, actual controller and general partner shall have experience in operation, management or asset management, investment and related industries, and the relevant experience shall be at least 5 years.

If the actual controller of the private fund manager is a natural person, he/she shall serve as the legal representative, senior manager or managing partner of the private fund manager and its appointed representative unless otherwise provided for.

The requirement makes it clear that actual controllers must have relevant industry experience, raising the standard again compared with the current regulations. At the same time, adhering to the principle that the actual controller has been encouraged by the Association to serve as a senior executive of the manager, it is clear in the draft for comments that the actual controller shall serve as the legal representative, senior manager or managing partner and its appointed representative unless otherwise stipulated.

It is necessary to have both financial strength and investment experience, and the actual controller should be able to effectively perform his duties to investors. The requirements for real controllers in the draft are relatively strict, but the author believes that this requirement can form a certain blow to “fake private placement” and “fake private placement”.

Vii. Requirements for years of working experience for senior executives

The legal representative, managing partner and its appointed representative of the private securities investment fund manager and the senior management personnel responsible for investment shall have relevant work experience in securities, fund and futures investment management, and the relevant work experience shall be at least 5 years.

The legal representative, managing partner and its appointed representative of the private equity fund manager and the senior management personnel responsible for investment shall have working experience in equity investment management or related industry management, and the relevant working experience shall be at least 5 years.

Following the requirement of more than 3 years of working experience in relevant industries in the list of registration application materials in the new version of 2022, the Measures for Registration and Filing (Draft for Comments) has adjusted the 3 years to 5 years, further enhancing the requirements on working experience of senior executives. In addition, the draft more clearly defines the specific forms of senior executives' work experience, such as securities and futures investment, equity investment management, industrial management and other related businesses in financial institutions, government-controlled enterprises, listed companies, private fund managers, government departments, public institutions, law firms/accounting firms and other institutions.

Viii. Performance requirements for senior executives

Securities performance: the investment performance of securities and futures products managed as a fund manager or the person in charge of investment decision-making for more than two consecutive years in the recent five years, with the scale of a single product not less than 20 million yuan. In case of joint management by more than one person, specific materials shall be provided to explain the scale of products under its management; If the relevant materials cannot be provided, the calculation shall be based on the average size.

It is clear again: the association will not recognize the securities and futures investment with the funds of research personnel and enterprises.

Compared with the current standards, the association has again raised the overall performance requirements for senior executives. The time limit of performance, that is, the performance within 5 years is required; At the same time, the management scale of a single product increased from 10 million yuan to 20 million yuan, which is a relatively stable scale in continuous time.

Equity performance: It shall have at least 2 leading investment projects in the equity of unlisted enterprises in the recent 10 years, with a total investment amount of no less than 30 million yuan, and at least 1 project shall be successfully withdrawn through initial public offering and listing, equity merger and acquisition or equity transfer.

The requirements for equity senior management experience are limited to financial institutions, equity investment management or operation management experience and industrial institutions; The empirical performance of individual investors is also not recognized.

Compared with the current standards, the association also limits the performance time period of equity executives, that is, the investment performance within 10 years is required. At the same time, the initial investment scale of the project was increased from 10 million yuan to 30 million yuan; At least one project is required to exit successfully through initial public offering and listing, equity merger and acquisition or equity transfer.

Ix. Add the “Termination” link and “Account lock” function

The original “non-registration” link has been cancelled, and two special points need to be noted in the new “termination” link:

(1) “Failing to supplement and correct the registration materials, or failing to make explanations, supplements or modifications according to the feedback of the Association” within more than 6 months from the date of return by the Association;

(2) “The suspension has not been resumed for more than 12 months”.

For the applicant institutions that meet the relevant conditions, the association shall terminate the registration of private fund managers, return the registration materials and explain the reasons.

The main content of the Measures for Registration and Filing (Draft for Comments) is 42 pages, with 82 articles in total. This paper only refines and interprets the main changes in the regulatory requirements for registration and filing of private fund managers. For matters not covered, please look forward to the follow-up content, and welcome discussions and detailed inquiries.

In general, AMAC has increasingly strict requirements for the registration and filing of private fund managers and continuous compliance operation. Only following the regulatory trend and compliance exhibition is the key magic gun to ensure the longevity of the foundation industry.