Source: Brokerage China
On April 30, the "Guidelines for the Operation of Private Securities Investment Funds" (hereinafter referred to as the "Operational Guidelines") was officially announced.
During the one-year public consultation period of the "Operation Guidelines", the AMAC received more than 600 opinions and suggestions, mainly focusing on the fundraising and survival thresholds, the opening frequency of subscription and redemption and the lock-up period arrangement.
For example, the minimum size of private equity funds has been reduced from 10 million yuan to 5 million yuan, the application and redemption of private funds has been adjusted from a maximum of one application and redemption per month to a maximum of once a week, and the six-month lock-up period requirement has been relaxed to three months.
Change 1: The minimum size of private equity funds is reduced to 5 million yuan
In order to gradually improve the status quo of the industry, the draft of the "Operation Guidelines" proposes that private securities funds with a fund size of less than 10 million yuan should enter the liquidation process.
The official version of the "Operation Guidelines" has made adjustments: first, the minimum scale of existence has been reduced to 5 million yuan, and it is clarified that funds with a scale of less than 5 million yuan for a long time should stop subscribing; second, after triggering the cessation of subscription, before entering the liquidation procedure, a buffer period has been added, "if the net asset value of the fund is still less than 5 million yuan for 120 consecutive trading days after the cessation of subscription, it shall enter the liquidation procedure"; and third, a certain transition period will be given, and the starting time for long-term periods of less than 5 million yuan will be set as January 1, 2025.
According to the data, as of the end of March 2024, the scale of products with private securities funds less than 5 million yuan accounted for a very small proportion, including a large number of "shell" products that have essentially no operation, and the scale managed by small-scale private equity institutions that do not have the ability to continue operations is only a few billion yuan, and the relevant regulations have given such institutions more ample time for adjustment and rectification, which has little impact on the industry.
Change 2: Relax the opening frequency of application and redemption
In order to guide investors to invest rationally and hold for a long time, the Consultation Paper proposes that private securities funds should be open for subscription and redemption at most once a month, and set a share lock-up period of no less than 6 months.
In this regard, the Operational Guidelines have absorbed relevant opinions, relaxing the frequency of application and redemption to a maximum of once a week, relaxing the six-month lock-up period requirement to three months, and allowing private equity funds to return the option to the market by setting short-term redemption fees instead of the mandatory lock-up period arrangement. In addition, there are no mandatory rectification requirements for the subscription and redemption and lock-up period arrangements of private securities funds that have been filed before the issuance of the Operational Guidelines.
Change 3: Portfolio investment maintains the double 25% requirement, but adds interpretation
Previously, the private securities fund industry lacked regulatory requirements for portfolio investment. In order to guide private equity fund managers to enhance their professional investment capabilities and diversify investment risks, the Operational Guidelines refer to the Provisions on the Operation and Administration of Private Asset Management Plans of Securities and Futures Operating Institutions to put forward a double 25% portfolio investment requirement, that is, the investment of a single private securities fund in the same asset shall not exceed 25% of the fund size, and the proportion of all private securities funds managed by the same private equity institution shall not exceed 25% of the same asset.
After soliciting industry opinions, the Operational Guidelines maintain the overall requirements for portfolio investment. In response to market institutions' reflection that the implementation of portfolio investment needs to consider changes in the market value of investment assets, clarify the calculation basis for different types of assets, and adjust arrangements after passive over-proportion, the Association has optimized the relevant provisions, clarifying that the investment ratio can be calculated according to the method of purchase cost and market value, and supplemented the definition of "same asset" and the requirements for adjustment of investment ratio after passive over-limit, so as to facilitate the implementation of the industry.
Change 4: DMA business shall not exceed 2 times leverage, and existing open positions will not be affected
The Operational Guidelines require private securities funds to carry out OTC derivatives transactions with the goal of risk management and asset allocation, and regulate the overall risk exposure of a single private securities fund participating in OTC derivatives transactions from the perspective of deleveraging and risk prevention. Since February 2024, the scale and leverage of private equity funds participating in the long-short income swap (DMA) business have decreased, and the risks have been released.
In view of the situation in which private securities funds conducted leveraged transactions through DMA in the early stage, the Operational Guidelines clearly require that private securities funds shall not participate in DMA business with more than 2 times leverage, so as to further control the level of business leverage.
In addition, the Operational Guidelines specify that the notional principal of a private securities fund's participation in snowball-structured derivatives shall not exceed 25% of the fund's net assets, which is in line with the implementation of the private asset management plan of securities and futures operating institutions to participate in snowball-structured derivatives to reduce regulatory arbitrage space.
With regard to the transitional arrangements for OTC derivatives transactions, taking into account the requirements of the Association that have been communicated to the market in the early stage such as limiting the leverage ratio of DMA business and controlling the concentration of snowball-structured derivatives investment, after the formal implementation of the Operational Guidelines, it is required that private securities funds that do not meet the terms of OTC derivatives transactions shall not be newly raised or extended, but the existing OTC derivatives contracts that have been opened can continue to operate until maturity without being affected.
Change 5: Significant relaxation of the transitional arrangements
In response to the process of soliciting opinions, industry organizations generally hope that there will be sufficient transitional arrangements, and have fully absorbed the opinions of the industry and significantly relaxed the transitional arrangements, specifically:
First, the transition period will be significantly extended to 24 months for existing funds that do not meet the terms of portfolio investment, and the relevant funds can be opened for subscription and redemption and normal investment operations during the transition period;
Second, private securities funds that still do not meet the relevant terms after the transition period can continue to invest and operate until the expiration of the contract, and only require that no new fundraising or extension be allowed, and no mandatory position adjustment or sale is required, which has little impact.
In the next step, the Asset Management Association said that it will conscientiously implement the "Operation Guidelines", continue to optimize the filing and self-discipline management of private securities funds, and further promote the high-quality development of the private securities fund industry.
Editor-in-charge: Li Dan
Proofreader: Li Lingfeng
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