Revision seeks to halt illegal fundraising, insider trading

Venture capital and private equity fund managers have welcomed a draft amendment to the Law on Securities Investment Funds, aimed at protecting investors' interests and reducing financial risks by imposing new regulations on privately offered funds.

A second review of the amendment started on Tuesday at the opening session of the bimonthly meeting of the National People's Congress Standing Committee. The first review was in June.

A man rests at a brokerage in Hangzhou, Zhejiang province, on Tuesday. The second review of a draft amendment for privately off ered funds started on Tuesday. [Photo/China Daily]

The draft document specifies regulations for private equity funds, including its contracts, investment scope and rules for fund managers.

The revision is aimed at preventing illegal fundraising activities and insider trading.

Detailed rules for the managers of privately offered funds will be also introduced by the China Securities Regulatory Commission, according to the draft document.

The draft amendment said that the managers of privately offered funds should register with the fund industry association, and that the association should report private equity funds that meet a certain scale to the CSRC.

"We're glad that the private equity sector will be under increased supervision for a healthy and steady development of the sector, and we do hope that the CSRC will introduce detailed rules based on the market," said Liu Gang, general manager of the North China Region at Shenzhen Capital Group, a Chinese leading equity investment firm.

Liu said that he hopes the privately offered fund sector doesn't become the target of excessive regulations — as was the case for public funds — which might prevent the introduction of new financial products and lead to a lackluster performance.

"We hope that the fundraising and investment activities of private equity funds can be made according to the market. Investors can then choose fund managers with sound investment records," Liu said.

Other players in the sector would like to see more input from the industry.

"We think that the industry association should play a more positive role in the private equity sector. We'll keep a close eye on the detailed rules to be made by the CSRC for fund managers of privately offered funds," Yi Jigang, president of Orient Jiyi Investment, a Beijing-based private equity firm, told China Daily.

The venture capital and private equity sector has been developing rapidly in China. There were more than 10,000 venture capital and private equity firms at the end of 2011 managing nearly 2 trillion yuan ($317.5 billion) in total assets, according to Liu Jianjun, director of the financial affairs division of the CSRC's Department of Fiscal and Financial Affairs.

"Private equity investment is good for companies to raise money and for the nation to reform its economy," said Liu. "But there has been some illegal fundraising."

Government authorities in Tianjin said in August 2011 that a fraudulent equity investment firm called Huolimu Equity Investment Fund had illegally raised about 1.6 billion yuan from more than 5,000 people around China. The money could not be recovered.

And previously, according to media reports, two other equity investment firms — Tiankai Xinsheng Equity Investment Fund in Tianjin and Well & Well Group in Shanghai — also defrauded investors.

Xinhua contributed to this story.