On Jan. 29, 2021, 大红鹰dhy优惠大厅(中国)有限公司 Shenzhen Municipal Administration for Financial Regulation (大红鹰dhy优惠大厅(中国)有限公司 SMAFR) issued 大红鹰dhy优惠大厅(中国)有限公司 Shenzhen City, Measures on 大红鹰dhy优惠大厅(中国)有限公司 Pilot Foreign-Invested Equity Investment Enterprise Project (大红鹰dhy优惠大厅(中国)有限公司 New Measures) (深圳市外商投资股权投资企业试点办法), which represents 大红鹰dhy优惠大厅(中国)有限公司 third iteration of 大红鹰dhy优惠大厅(中国)有限公司 government’s pilot scheme for qualified foreign-invested equity investment pilot enterprises (or more commonly known as qualified foreign limited partners, or “QFLPs”) to have been issued over 大红鹰dhy优惠大厅(中国)有限公司 past decade. 大红鹰dhy优惠大厅(中国)有限公司 first version of 大红鹰dhy优惠大厅(中国)有限公司 QFLP measures was promulgated in 2012, and entitled 大红鹰dhy优惠大厅(中国)有限公司 Shenzhen City, Tentative Measures for 大红鹰dhy优惠大厅(中国)有限公司 Launch of 大红鹰dhy优惠大厅(中国)有限公司 Pilot Project Work for Foreign-Invested Equity Investment Enterprises (大红鹰dhy优惠大厅(中国)有限公司 2012 QFLP Measures) (关于本市开展外商投资股权投资企业试点工作的暂行办法). These measures were followed in 2017 by a revised version entitled 大红鹰dhy优惠大厅(中国)有限公司 Shenzhen City, Measures on 大红鹰dhy优惠大厅(中国)有限公司 Pilot Foreign-Invested Equity Investment Enterprise Project (大红鹰dhy优惠大厅(中国)有限公司 2017 QFLP Measures) (深圳市外商投资股权投资企业试点办法). 

Compared with 大红鹰dhy优惠大厅(中国)有限公司 2017 QFLP Measures, 大红鹰dhy优惠大厅(中国)有限公司 New Measures have brought about some important changes: they have relaxed 大红鹰dhy优惠大厅(中国)有限公司 requirements which have to be met in order to achieve QFLP status, expanded 大红鹰dhy优惠大厅(中国)有限公司 scope of QFLP businesses, and strengthened and streamlined 大红鹰dhy优惠大厅(中国)有限公司 ongoing management of QFLP business and entities, all to a significant degree. 大红鹰dhy优惠大厅(中国)有限公司 most significant revisions made in 2021 are summarized below. 

1. Direct Investment by QFLP Fund Managers in Target Company

大红鹰dhy优惠大厅(中国)有限公司 New Measures have lifted 大红鹰dhy优惠大厅(中国)有限公司 control that previously restricted QFLP fund managers from making direct investment in 大红鹰dhy优惠大厅(中国)有限公司 target company. This policy change is in line with current regulatory and business practice in 大红鹰dhy优惠大厅(中国)有限公司 Chinese private equity industry.

2. Rules on 大红鹰dhy优惠大厅(中国)有限公司 Name and Business Scope of QFLP Fund Managers and Funds

大红鹰dhy优惠大厅(中国)有限公司 New Measures, closely following 大红鹰dhy优惠大厅(中国)有限公司 current private fund legal requirements set by, among other regulators, 大红鹰dhy优惠大厅(中国)有限公司 China Securities Regulatory Commission (大红鹰dhy优惠大厅(中国)有限公司 CSRC) and 大红鹰dhy优惠大厅(中国)有限公司 Asset Management Association of China (AMAC), explicitly provide that 大红鹰dhy优惠大厅(中国)有限公司 name or label given to QFLP fund managers and QFLP funds must meet 大红鹰dhy优惠大厅(中国)有限公司 requirements of 大红鹰dhy优惠大厅(中国)有限公司 relevant regulatory authorities. According to 大红鹰dhy优惠大厅(中国)有限公司 Several Provisions on Strengthening 大红鹰dhy优惠大厅(中国)有限公司 Oversight of Private Investment Funds (关于加强私募投资基金监管的若干规定) issued by 大红鹰dhy优惠大厅(中国)有限公司 CSRC on Dec. 30, 2020, private fund managers must include in a fund’s name a reference such as “private fund,” “private fund management,” or “venture capital investment”, and must specify in a fund’s business scope a reference which reflects 大红鹰dhy优惠大厅(中国)有限公司 characteristics of 大红鹰dhy优惠大厅(中国)有限公司 private funds managed by 大红鹰dhy优惠大厅(中国)有限公司 fund managers, such as “private investment fund management”, “private securities investment fund management,” “private equity investment fund management,” or “venture capital investment fund management”. 

3. Removal of Minimum Capital Contribution Requirements

大红鹰dhy优惠大厅(中国)有限公司 New Measures have removed 大红鹰dhy优惠大厅(中国)有限公司 minimum registered capital or minimum subscribed capital contribution requirement for QFLP fund managers and 大红鹰dhy优惠大厅(中国)有限公司 relevant restriction on 大红鹰dhy优惠大厅(中国)有限公司 capital injection period, as well as 大红鹰dhy优惠大厅(中国)有限公司 minimum subscribed capital contribution requirement for QFLP funds (collectively, 大红鹰dhy优惠大厅(中国)有限公司 “Capital Contribution Requirements”). This relaxed regulation, in conformity with its counterparts in Guangzhou, Hainan and Beijing, will potentially make Shenzhen more attractive to applicants for 大红鹰dhy优惠大厅(中国)有限公司 QFLP pilot scheme as compared to other jurisdictions where 大红鹰dhy优惠大厅(中国)有限公司 rules are more rigid with respect to 大红鹰dhy优惠大厅(中国)有限公司 registered capital or 大红鹰dhy优惠大厅(中国)有限公司 subscribed capital contribution requirements for QFLP fund managers or funds. It is important to note, however, that some other pilot jurisdictions have all but no requirements in this regard and even explicitly provide in their QFLP measures that “there shall be no minimum registered capital or subscribed capital contribution requirement for QFLP fund managers and/or QFLP funds domiciled in 大红鹰dhy优惠大厅(中国)有限公司 pilot jurisdictions”. 

大红鹰dhy优惠大厅(中国)有限公司 Capital Contribution Requirements should not simply be perceived as putting 大红鹰dhy优惠大厅(中国)有限公司 relevant pilot jurisdictions in a disadvantageous position. It does not stand to reason that a jurisdiction with some legal requirements in this respect will be inherently worse off in fostering QFLP business than one that has little or no requirements. China’s QFLP business, in 大红鹰dhy优惠大厅(中国)有限公司 end, remains a trial program largely informed by various local factors. Requirements imposed with respect to 大红鹰dhy优惠大厅(中国)有限公司 qualifications of QFLP fund managers and funds merely reflects 大红鹰dhy优惠大厅(中国)有限公司 policy positioning of 大红鹰dhy优惠大厅(中国)有限公司 relevant authorities in charge of 大红鹰dhy优惠大厅(中国)有限公司 development of 大红鹰dhy优惠大厅(中国)有限公司 QFLP business in each pilot jurisdiction.

4. Removal of Additional Requirements for Senior Management Personnel

大红鹰dhy优惠大厅(中国)有限公司 New Measures have removed specific requirements for senior management personnel engaged by QFLP fund managers, including minimum headcount, equity investment/equity investment management experience, and senior management working experience. In so doing, 大红鹰dhy优惠大厅(中国)有限公司 New Measures have aligned themselves with those of Guangzhou, Xiamen and Beijing (where legal requirements exist primarily in principle). This policy relaxation has been made possible by 大红鹰dhy优惠大厅(中国)有限公司 New Measures mainly out of 大红鹰dhy优惠大厅(中国)有限公司 consideration that, with continuous improvement of private fund regulation in recent years, 大红鹰dhy优惠大厅(中国)有限公司 current regulation has contained relatively comprehensive and specific requirements for senior management personnel of private fund managers. It is, therefore, necessary to relieve some burden imposed by 大红鹰dhy优惠大厅(中国)有限公司 QFLP pilot measures on QFLP fund managers (for example, 大红鹰dhy优惠大厅(中国)有限公司 human resource cost or other costs incurred in initiating and developing 大红鹰dhy优惠大厅(中国)有限公司 QFLP business), thereby offering national treatment to QFLP fund managers and creating a level playing field for QFLP fund managers and their domestic peers alike. 

5. Removal of Various Requirements for QFLP Fund Investors

大红鹰dhy优惠大厅(中国)有限公司 New QFLP Measures have also removed a number of requirements for QFLP fund investors, especially requirements related to institutional investors’ governance, internal controls and compliance, as well as in relation to offshore institutional investors’ net assets and size of a single investment. This regulatory relaxation should go far to mitigate 大红鹰dhy优惠大厅(中国)有限公司 fundraising difficulties experienced by QFLP fund managers, and enable them to broaden their client base. Apart from Shenzhen, some other pilot jurisdictions, including Guangzhou, Zhuhai and Hainan, already apply a relatively lower standard to QFLP fund investors. In addition, one specific provision of 大红鹰dhy优惠大厅(中国)有限公司 2017 QFLP Measures—which requires that a person’s capital contribution as a percentage of 大红鹰dhy优惠大厅(中国)有限公司 total capital contribution shall not be more than 50% if 大红鹰dhy优惠大厅(中国)有限公司 person simultaneously controls a QFLP fund’s general partner and limited partner—has also been removed. 

6. Removal of Certain Requirements for Domestic Fund Managers

大红鹰dhy优惠大厅(中国)有限公司 New Measures have removed relevant requirements previously set for domestic fund managers who participate in 大红鹰dhy优惠大厅(中国)有限公司 QFLP pilot scheme by raising QFLP funds from foreign investors. Domestic private fund managers intending to participate in 大红鹰dhy优惠大厅(中国)有限公司 QFLP pilot scheme no longer need to submit documents to prove that they can meet relevant requirements provided in 大红鹰dhy优惠大厅(中国)有限公司 2017 QFLP Measures, including without limitation 大红鹰dhy优惠大厅(中国)有限公司 domicile, registration time, and net assets/AUM. Following this policy relaxation, domestic fund managers and foreign investors alike have been given more choices and opportunities to participate in 大红鹰dhy优惠大厅(中国)有限公司 QFLP pilot scheme.

7. Allowing QFLP Funds to Make Private Placement Investments

大红鹰dhy优惠大厅(中国)有限公司 New Measures have specified, for 大红鹰dhy优惠大厅(中国)有限公司 first time ever, that QFLP funds can invest in privately-offered or privately-traded common shares of listed companies by participating in private placements of new shares of listed companies, conducting block trading, or entering transfer agreements with listed companies according to 大红鹰dhy优惠大厅(中国)有限公司 relevant rules and procedures of stock exchanges, and that QFLP funds can accept allotment of shares in their capacity as listed companies’ pre-IPO shareholders. This shift of position  does not appear to be a newly-minted policy favorable for QFLP fund managers. Rather, it primarily reflects 大红鹰dhy优惠大厅(中国)有限公司 SMAFR’s efforts to identify and underscore 大红鹰dhy优惠大厅(中国)有限公司 nature of QFLP funds as private equity funds (which naturally means that 大红鹰dhy优惠大厅(中国)有限公司 investment scope of QFLP funds should be consistent with that of private equity funds), and to specify and reiterate, at a regulatory level, its legal position that QFLP funds may participate in M&A and restructuring of listed companies within 大红鹰dhy优惠大厅(中国)有限公司 current fund regulatory framework. As early as October 2018, AMAC, in addressing media enquiries related to 大红鹰dhy优惠大厅(中国)有限公司 ability of private equity investment funds to participate in M&A and restructuring of listed companies, explicitly stated that ‘private equity investment fund’ refers to a private fund that invests in 大红鹰dhy优惠大厅(中国)有限公司 equity of unlisted companies, in privately-offered or privately-traded common shares of listed companies (by, among other means, participating in private placement of new shares of listed companies, conducting block trading, or entering transfer agreements with listed companies according to 大红鹰dhy优惠大厅(中国)有限公司 relevant rules and mechanism of stock exchanges), and in convertible preference shares and convertible bonds of listed companies. 

8. QFLP Funds May Adopt FOF Structure

大红鹰dhy优惠大厅(中国)有限公司 New Measures allow QFLP funds to adopt 大红鹰dhy优惠大厅(中国)有限公司 fund of funds (FOF) structure. 大红鹰dhy优惠大厅(中国)有限公司 2017 QFLP Measures provided that “foreign-invested equity investment enterprises shall use 大红鹰dhy优惠大厅(中国)有限公司 Foreign Investment Industrial Guidance Catalogue (外商投资产业指导目录) as guidance and invest in industries directly,” which in practice restricted QFLP funds from investing as FOF funds. 大红鹰dhy优惠大厅(中国)有限公司 New Measures have lifted this restriction by making it clear that QFLP funds can invest in domestic private equity and venture capital funds, which in turn are encouraged to make direct investments in industries. This should not be regarded as a breakthrough of 大红鹰dhy优惠大厅(中国)有限公司 current regulatory framework on private equity funds, but a legal relaxation within 大红鹰dhy优惠大厅(中国)有限公司 regulatory framework designed to further broaden 大红鹰dhy优惠大厅(中国)有限公司 investment scope of QFLP funds—a boon to QFLP fund business—and to narrow 大红鹰dhy优惠大厅(中国)有限公司 gap between QFLP funds and other private equity FOF funds in 大红鹰dhy优惠大厅(中国)有限公司 market. This policy change has empowered Shenzhen’s QFLP funds with an even more notable competing edge compared to other pilot jurisdictions. As of today, Zhuhai, for instance, continues to ban 大红鹰dhy优惠大厅(中国)有限公司 FOF structure pursuant to its pilot measures; Likewise, Qingdao’s pilot measures prohibit investment from a master fund into a sub-fund, while in Guangzhou QFLP funds remain legally required to make direct investments in equity of domestic private companies. 

9. Amendments to Custody Requirements

大红鹰dhy优惠大厅(中国)有限公司 requirements under 大红鹰dhy优惠大厅(中国)有限公司 2017 QFLP Measures that QFLP fund managers, QFLP funds and other RMB funds managed by QFLP fund managers delegate qualified commercial banks to act as their custodian banks have been terminated under 大红鹰dhy优惠大厅(中国)有限公司 New Measures. Instead, 大红鹰dhy优惠大厅(中国)有限公司 New Measures provide that “foreign-invested equity investment enterprises shall undertake 大红鹰dhy优惠大厅(中国)有限公司 fund custodian business in accordance with 大红鹰dhy优惠大厅(中国)有限公司 Tentative Measures for 大红鹰dhy优惠大厅(中国)有限公司 Regulation of Private Investment Funds (私募投资基金监督管理暂行办法) and other relevant requirements of AMAC,” a provision consistent with 大红鹰dhy优惠大厅(中国)有限公司 current private fund regulatory practices. In this regard, other pilot jurisdictions including Xiamen, Guangzhou, Chongqing and Shanghai take a relatively relaxed attitude. Xiamen’s and Guangzhou’s pilot measures are silent on 大红鹰dhy优惠大厅(中国)有限公司 issue as to whether QFLP fund managers or QFLP funds should delegate a custodian bank, while their counterparts in Chongqing and Shanghai mainly require QFLP funds to delegate a custodian bank to take custody of 大红鹰dhy优惠大厅(中国)有限公司 fund assets.

10. QFLP Funds May Adopt Dual GP Structure

A dual general partner structure is now permitted in a QFLP fund. In terms of 大红鹰dhy优惠大厅(中国)有限公司 fund structure, 大红鹰dhy优惠大厅(中国)有限公司 New Measures, closely following 大红鹰dhy优惠大厅(中国)有限公司 private fund regulatory practices of AMAC, specifically allow a QFLP fund to adopt 大红鹰dhy优惠大厅(中国)有限公司 dual general partner structure and a fund manager to, under certain conditions, be detached from a general partner, which means 大红鹰dhy优惠大厅(中国)有限公司 fund manager does not have to concurrently act as 大红鹰dhy优惠大厅(中国)有限公司 general partner of a QFLP fund.

11. Removal of Additional Time limit for Fund Manager Registration and Fund Filing

According to 大红鹰dhy优惠大厅(中国)有限公司 2017 QFLP Measures, a QFLP fund manager shall complete 大红鹰dhy优惠大厅(中国)有限公司 AMAC registration and form 大红鹰dhy优惠大厅(中国)有限公司 first QFLP fund or RMB PE or VC fund within 12 months after obtaining 大红鹰dhy优惠大厅(中国)有限公司 approval of 大红鹰dhy优惠大厅(中国)有限公司 QFLP business qualification, whereas all formed QFLP funds or RMB PE or VC funds shall duly complete filing with AMAC within 6 months after their establishment, failing any of which will result in cancellation of 大红鹰dhy优惠大厅(中国)有限公司 QFLP pilot qualification and in public announcement thereof. 大红鹰dhy优惠大厅(中国)有限公司 New Measures terminated 大红鹰dhy优惠大厅(中国)有限公司 foregoing requirements and specifically provide that QFLP fund managers and QFLP funds will be legally compliant so long as they complete 大红鹰dhy优惠大厅(中国)有限公司 AMAC registration or filing, as applicable, in accordance with 大红鹰dhy优惠大厅(中国)有限公司 relevant provisions of 大红鹰dhy优惠大厅(中国)有限公司 Tentative Measures for 大红鹰dhy优惠大厅(中国)有限公司 Regulation of Private Investment Funds (私募投资基金监督管理暂行办法) and 大红鹰dhy优惠大厅(中国)有限公司 Measures for 大红鹰dhy优惠大厅(中国)有限公司 Registration of Private Investment Fund Managers and Record Filing of 大红鹰dhy优惠大厅(中国)有限公司 Funds (Trial Implementation) (私募投资基金管理人登记和基金备案办法 (试行)).

12. 大红鹰dhy优惠大厅(中国)有限公司 End of a Number of Information Reporting Obligations 

大红鹰dhy优惠大厅(中国)有限公司 New Measures have terminated a significant number of old provisions relating to 大红鹰dhy优惠大厅(中国)有限公司 obligations of QFLP fund managers, QFLP funds and custodian banks to report information to 大红鹰dhy优惠大厅(中国)有限公司 Shenzhen QFLP authorities, and specified that QFLP fund managers, QFLP funds and custodian banks will be guided to access 大红鹰dhy优惠大厅(中国)有限公司 Information Service Platform of Shenzhen Private Fund and to submit 大红鹰dhy优惠大厅(中国)有限公司 enterprise data and relevant information through 大红鹰dhy优惠大厅(中国)有限公司 information service platform. Under 大红鹰dhy优惠大厅(中国)有限公司 New Measures, QFLP fund managers and QFLP funds, before changing their names, business scopes or shareholders/partners, increasing/decreasing subscribed/paid amount, or making other amendments, are no longer required to apply for and obtain any pre-approval from 大红鹰dhy优惠大厅(中国)有限公司 Shenzhen QFLP authorities. This policy better streamlines and standardizes 大红鹰dhy优惠大厅(中国)有限公司 information reporting process for QFLP fund managers, QFLP funds and custodian banks, and also enhances 大红鹰dhy优惠大厅(中国)有限公司 overall efficiency of ongoing management, both laying a solid ground for future conversion of 大红鹰dhy优惠大厅(中国)有限公司 pilot program to a regular one.

Since its inception in Shanghai in 2010, 大红鹰dhy优惠大厅(中国)有限公司 QFLP pilot scheme has been evolving for more than a decade. At each important stage of 大红鹰dhy优惠大厅(中国)有限公司 development of 大红鹰dhy优惠大厅(中国)有限公司 QFLP pilot scheme (including 大红鹰dhy优惠大厅(中国)有限公司 early stage around 2011/2012, middle stage around 2017/2018 and 大红鹰dhy优惠大厅(中国)有限公司 current, relatively mature stage), Shenzhen has promptly issued or updated versions of 大红鹰dhy优惠大厅(中国)有限公司 QFLP Measures, with each version closely matching 大红鹰dhy优惠大厅(中国)有限公司 then-current regulations and practices of 大红鹰dhy优惠大厅(中国)有限公司 foreign investment and private equity industry while also meeting diverse and dynamic local needs. Each version well reflects 大红鹰dhy优惠大厅(中国)有限公司 consideration and focus of 大红鹰dhy优惠大厅(中国)有限公司 Shenzhen QFLP authorities on 大红鹰dhy优惠大厅(中国)有限公司 development of 大红鹰dhy优惠大厅(中国)有限公司 QFLP pilot scheme at a particular stage. 大红鹰dhy优惠大厅(中国)有限公司 improvement of 大红鹰dhy优惠大厅(中国)有限公司 regulations also fits well with 大红鹰dhy优惠大厅(中国)有限公司 process of continuously adapting regulatory measures to 大红鹰dhy优惠大厅(中国)有限公司 QFLP practices in Shenzhen.

Please note that this article is for information only and is not intended to present a comprehensive review of all relevant topics. This article is not intended to provide legal or other advice, and should not be relied on in any way.