The Asset Management Association of China (AMAC) published new rules that will be in effect starting May 1 in a bid to weed out "fake private funds."
The new rules increased the minimum paid-in capital threshold for private equity and hedge funds to 10M yuan ($1.4M), five times higher than the present threshold. The minimum threshold limit increase is estimated to impact almost half of the PE and VC firms, per Redbud Capital.
Established domestic firms and foreign investors are set to benefit from the new rules as they will reduce market competition.
- Per the revised rules, senior management and legal representatives are required to own a minimum 20% stake in the business.
- In addition, the new rules prohibit controlling shareholders from transferring their ownership for a period of three years.
Assets under management (AUM) for private funds reached 20T yuan ($2.8T), up eightfold since 2015.
- AMAC data shows that there are 23,667 entities with less than 10M yuan managed capital, representing 27% of the market.
