A New Era for Private Funds in China?

February 12, 2015

Several years ago, alternative asset managers were enthusiastically regarding China as a new frontier for fundraising. Indeed, in 2011, Chinese private equity and venture capital firms raised substantially more money from local renminbi investors than from foreign investors1. This was in part based on the premise that investment firms could access deals that were hitherto unavailable to them – for example, by sidestepping industry investment restrictions applicable to foreign capital. However, there was also a sense that raising money in mainland China – often from newly minted high net worth individuals and cash rich state-owned enterprises – was easier than raising capital in what was at the time a rather moribund fundraising market elsewhere. For these and other reasons, raising renminbi-denominated funds (commonly known as RMB Funds), traditionally the preserve of very local investment firms, was briefly at the forefront of the China strategy of a whole host of private equity firms, with global heavyweights such as Carlyle, Blackstone Group, KKR and TPG all launching renminbi-denominated products.

Since this 2011 peak, there has been a steady decline in the amounts raised for RMB Funds, whereas international fundraisings focused on China have remained relatively constant. A backdrop to this has been a large amount of uncertainty regarding the regulation of the private funds industry in China. Underpinning this uncertainty has been an interesting battle for supremacy over the regulation of the PE/VC industry by two important regulatory bodies in China – the China Securities Regulatory Commission (CSRC, the body that is principally responsible for supervising the securities industry in China) and the National Development and Reform Commission (NDRC, which is principally involved in formulating and implementing policies for economic and social development in China).

This battle appears to have been decisively determined, resulting in a number of legal developments during the course of this calendar year. However, it is perhaps helpful to outline in brief the historical backdrop to such recent legal developments.

Read "A New Era for Private Funds in China?"