Public offering funds are approved to enter the PE field. The China Securities Regulatory Commission (CSRC) has launched a filing system.

　　On September 26, the China Securities Regulatory Commission (CSRC) released the revised "Trial Measures for Specific Client Asset Management Business of Fund Management Companies" (hereinafter referred to as the "Measures"), which will come into effect on November 1, 2012. Article 9 of the Measures clearly states that assets of asset management plans can be invested in "equity, bonds, and other property rights that are not transferred through a securities exchange." At the same time, the Measures stipulate that specific asset management plans investing in equity, bonds, and other property rights that are not transferred through a securities exchange are called special asset management plans. Fund management companies should establish specialized subsidiaries to conduct special asset management business through the establishment of special asset management plans. This means that the investment scope of public offering funds will extend from the secondary market to the equity investment field, and public offering funds can also set up corresponding management teams to engage in equity investment business.
　　The revised Measures have caused quite a stir in the industry. Public offering funds are authorized for the first time to enter the alternative asset investment field of equity and bonds, and have made breakthroughs in fundraising scale, fundraising process, and regulatory filing, providing new ideas for the development of the private equity fundraising market.
　　Fundraising direction is locked, and the number of specific clients can exceed 200.
　　The revised Measures clearly stipulate the fundraising direction for public offering funds conducting specific client asset management business. For handling specific asset management business for a single client, Article 11 of the Measures stipulates that "the initial assets entrusted by the client shall not be less than RMB 30 million, except as otherwise provided by the China Securities Regulatory Commission." For handling specific asset management business for multiple clients, Article 12 of the Measures requires that investors must be "natural persons, legal persons, legally established organizations, or other specific clients recognized by the China Securities Regulatory Commission, who entrust an initial amount of not less than RMB 1 million to invest in a single asset management plan and who can identify, judge, and bear the corresponding investment risks."
　　At the same time, Article 13 of the Measures also makes the following provisions on the number of clients and the scale of entrusted assets: "For asset management conducted by an asset manager for multiple clients, the number of principals in a single asset management plan shall not exceed 200, but the number of investors with a single entrusted amount exceeding RMB 3 million is not limited; the total initial assets entrusted by clients shall not be less than RMB 30 million but shall not exceed RMB 5 billion; except as otherwise provided by the China Securities Regulatory Commission."
　　Compared with the restrictions on the number of investors in public offering funds and private equity funds, the number of investors in private equity funds usually established in the form of a joint-stock limited company does not exceed 200; the number of investors established under a limited liability system or limited partnership system does not exceed 50; while the Measures stipulate that the number of investors with a single entrusted amount exceeding RMB 3 million is not limited. Based on the fund scale stipulated in the Measures, the minimum number of investors for public offering funds establishing private equity investment funds is 10, and the maximum number can reach 1666. It can be seen that, when public offering funds conduct specific client asset management business, the restrictions on the number of investors are more relaxed compared to private equity funds, especially the provision that the number of investors with a single entrusted amount exceeding RMB 3 million is not limited, which enhances the fundraising flexibility of public offering funds. Moreover, public offering funds have accumulated considerable client resources over many years of operation, and the relaxation of restrictions on the number of investors makes it easier for public offering funds to leverage this advantage.
　　Qingke Research Center observes that if public offering funds engage in specific asset management business such as equity investment funds, the fund size should not be less than RMB 30 million and not exceed RMB 5 billion. Currently, the Company Law, Securities Law, Partnership Enterprise Law, etc., do not strictly limit the fundraising scale of private equity funds, which reflects the principle of following the private equity funds' own decision on the fundraising scale. However, considering the risk tolerance and investment term limits of investors, the Measures limit the scale of special asset management plans. However, the requirement for the total scale also limits the development space of public offering funds participating in the private equity market. However, considering that public offering funds lack investment experience in the private equity industry, limiting the fundraising scale also reduces the risk of investors to some extent.
　　Two parallel sales channels; fundraising process needs to be standardized and rigorous.
　　The Measures stipulate that public offering funds can sell asset management plans on their own or through institutions with fund sales qualifications, but according to Article 12 of the CSRC's "Regulations on Issues Concerning Fund Management Companies Conducting Specific Asset Management Business for Multiple Clients," fund management companies and agency sales institutions shall not sell asset management plans through newspapers, television, radio, the internet (except for the websites of fund management companies and agency sales institutions), and other public media. It can be seen that public offering funds participating in specific asset management plans are not allowed to conduct public publicity. Therefore, in the foreseeable future, the main source of funds for public offering funds trying out private equity investment will still be the secondary market investors accumulated by fund companies and agency sales institutions. However, considering that the growth rate of the number of qualified investors is currently limited, the release of the Measures is unlikely to bring about a significant change to the overall tight fundraising market.
　　In terms of the fundraising process, the Measures also make relatively detailed provisions. For example, in the fundraising process of public offering funds, if selling asset management plans to multiple specific clients, an investment prospectus needs to be prepared, clearly stating the overview of the asset management plan, the main content of the asset management plan contract, the overview of the asset manager and asset custodian, investment risks, initial sales period, etc., and ensuring that the information is true, accurate, and complete. It also requires the asset manager to fully understand the capital capacity, investment experience, and investment objectives of the asset principals, so as to sell suitable products to suitable investors. However, based on the current fund sales market situation, some sales personnel often deliberately downplay investment risks or exaggerate investment returns due to performance factors, preventing investors from realistically understanding the investment structure. This requires more detailed regulations on the fundraising process to minimize information asymmetry for investors.
　　CSRC as the regulatory body; multi-level filing to avoid investment risks.
　　Allowing public offering funds to enter the PE field and breaking down the barriers between the primary and secondary markets has been quite controversial. The revision of the Measures has put an end to the controversy. Public offering funds participating in private equity investment inherently involve certain risks, such as if the fund company fails to properly supervise the IPO process of the invested companies, it may lead to related transactions and the transfer of benefits. To avoid the above risks, Article 42 of the Measures makes clear provisions, requiring asset managers to explain the implementation of the fair trading system, the performance comparison between specific asset management business and securities investment funds, and abnormal trading behaviors in the quarterly report of each quarter, and to be signed by the investment manager, chief inspector, and general manager respectively. In addition, the Measures also make detailed provisions on the filing of public offering funds conducting specific client asset management business, requiring public offering funds handling specific asset management business for a single client to file the signed asset management contract with the CSRC within 5 working days, and those handling business for multiple clients to file with the CSRC within 5 working days of starting to sell asset management plans.
　　It can be seen that the regulatory authorities have realized the potential risks of allowing public offering funds to participate in the PE market. Although the provisions on filing for public offering funds in the Measures to some extent avoid the investment risks of public offering funds and reduce the possibility of violations within public offering funds, as public offering funds gradually enter the PE market, more problems will inevitably emerge, and it is expected that related legal and regulatory operational details will be released successively.
　　In summary, the Qingke Research Center believes that the revision of this "Method" will benefit both the public offering fund industry and the PE industry. For public offering funds, opening up PE investment will undoubtedly allow them to better leverage their resource advantages, guide the PE market to engage in healthy competition, and open up new investment areas for a wide range of investors, achieving scientific asset portfolio management. For the PE industry, with the entry of heavyweight institutional investors such as insurance companies, social security funds, and public offering funds, the investor structure is gradually changing. The strong financial strength and stable investment cycle of institutional investors will play a strong driving role in the PE market, which is in its growth stage. At the same time, the promulgation of the "Method" has also sparked imagination within the private equity industry regarding the inclusion of itself into the regulatory system. For a long time, apart from some regulations issued by the National Development and Reform Commission on the private equity industry, the private equity industry has been operating in a gray area, in an awkward state of lacking regulation. This "Method" includes public offering funds' participation in PE market investment within the scope of regulation, undoubtedly promoting the process of the private equity industry becoming more transparent.