◎ Reporter Zhao Hong

On 28 April, the Chinese Securities Investment Fund Association publicly consulted society on the Operational Guidelines for Private Fund Investments (hereinafter referred to as the Operational Guidelines). In accordance with the Operational Guidelines, the regulatory authorities are to regulate the collection and retention thresholds, portfolio investment and overall leverage levels of private fundraising. Their play is difficult to play in private fund-raising, which is part of the “collateral gun”.

Many investors often face such dilemmas when investing in private funds. They have chosen fund managers to perform well, especially flagship products. However, when they buy into other Fund products administered by the same administrator, the performance of these products cannot be compared with flagship products. Those flagship funds with better performance are only the “window fund” used by companies to promote replication, and investors are often unable to afford.

This phenomenon is not apparent from the current state of private fund-raising. A number of private fund-raising funds have been released in the course of development, but only the best product is displayed in marketing promotion, and, because many private fund information is not subject to disclosure, the “window fund”, which is used by private funders to promote its extension, is likely to be a blurred fund of millions of dollars.

For private fund managers, they have to produce hand-held performance products if they are to be left out of the same range of products. For the production of the Minster Fund, the operation of your Fund is a very fast-track instrument.

In pursuit of short-term visionary performance, Fund managers often resort to a number of means: first, to build performance with your Fund, to obtain short-term benefits from small-scale fund products, to take net value when one or two structural straits is seized; secondly, to make a great deal of precipitation on a single industry and even on a single stock; thirdly, to leverage some private funds to obtain short-term benefits; and fourthly, to use other funds to “give” as a grey area.

A careful reading of the Operational Guidelines reveals that the regulatory layer can be called a lot of manoeuvres to direct the “mantle door” of your fund.

For example, in article 5, the floor limits are set for the size of private fund products: the initial collection of private equity investment funds is not less than 10 million yuan renminbi, with a net asset of less than 10 million yuan renminbi for 60 consecutive trading days, and the private equity investment fund enters the liquidation process.

In article 12, private mortgage investments are limited: private equity investment funds should invest in a portfolio of assets. The funds invested in the same assets by private equity investment funds alone shall not exceed 25 per cent of the net assets of the fund; the total private equity investment fund administered by the same private fund manager shall not exceed 25 per cent of the same assets.

Article 14 regulates leverage: the total assets of the private equity investment fund shall not exceed 200 per cent of the net assets of the fund. Limitations on leverage multipliers are self-evident.

In article IV, there is also an explicit prohibition of corridor operations: private fund managers should review the conformity of the sources of financing of investors, not be subject to investment instructions from investors or their designated third parties, or operate under their own responsibility, and not provide corridor services to financial institutions, other private fund managers, financial institutions’ asset management products and other private fundraising funds to circumvent regulatory requirements such as investment scope, leverage constraints, investor thresholds.

The feedback deadline is 12 May 2023, and without surprise, the Operational Guidelines will soon be implemented. It may be anticipated that, after the formal closure of the above-mentioned draft, it will be difficult to play the playing field that attracts investors through the “window fund”.