2021.05.11 XIE, Qing (Natasha)、Jessica QIN
Beijing, as one of the pioneers of the Qualified Foreign Limited Partnership (QFLP) pilot program, launched its QFLP pilot in 2011. The Beijing Financial Regulatory Bureau (BFRB) and the Beijing Administration for Market Regulation (BAMR) jointly issued the Interim Measures on the Pilot Program of Qualified Foreign Limited Partner (“Interim Measures”) and the corresponding policy interpretation on April 28, 2021, which updates and improves the pilot program.
Below we summarize the key contents of the Interim Measures.
From its initial launch, the Beijing QFLP pilot program has allowed two QFLP fund management models: a domestic QFLP fund manager with foreign-invested QFLP funds or a foreign-invested QFLP fund manager with foreign-invested QFLP funds. The Interim Measures explicitly categorize QFLP fund managers into domestic QFLP fund managers and foreign-invested QFLP fund managers. That said, both qualified domestic private fund managers and foreign institutions may apply for QFLP pilot qualifications and investment quotas in Beijing.
According to the Interim Measures, a QFLP fund manager shall meet the following requirements:
(1) Qualification requirement: The controlling shareholder, de factor controller or executive partner of a QFLP fund manager shall either be (i) a financial institution; or (ii) a fund management institution whose assets under management are at least RMB 100 million or the equivalent amount in foreign currency.
(2) Compliance requirements: The institution itself or its shareholder(s) shall operate normally, have sound governance structures and internal control systems, and have not been subject to any punishment by any judicial authority or relevant regulatory authority.
(3) Personnel requirement: A QFLP fund manager shall have at least 2 senior management personnel with (i) more than 3 years of experience in equity investment or equity investment management; and (ii) good personal credit records.
Initial Fundraising Scale
A QFLP fund in Beijing can be established as a corporate-type, partnership-type or contractual-type fund. The Interim Measures require that the initial size of a single QFLP fund shall be, in principle, at least RMB 100 million or its equivalent in foreign currency, and the QFLP fund manager may subscribe to a certain proportion of the fund shares.
A QFLP fund manager may launch more than one QFLP fund and is allowed to allocate and adjust its QFLP investment quota among different QFLP funds.
The Interim Measures expand the investment scope of the QFLP funds. Other than equities of unlisted companies, a QFLP Fund is explicitly allowed to invest in (i) ordinary shares privately issued and traded by listed companies (including acquiring listed shares through block trade, transferring by agreements and private placements, etc.), preferred shares convertible to ordinary shares, debt-to-equity swaps, convertible bonds, and participation as existing shareholders in private placements by listed companies; (ii) mezzanine debts, investments in private bond issuances, and non-performing assets; and (iii) domestic private investment funds.
The Interim Measures underscore the importance of domestic investments by QFLP funds complying with the requirements on special administrative measures on foreign investment access to China. If the China Securities Regulatory Commission and the Asset Management Association of China (AMAC) have special requirements on the domestic investments by QFLP funds, such requirements shall be followed as well. For example, the QFLP funds launched by a QFLP fund manager having registered with the AMAC as a private-equity type fund manager shall comply with the AMAC’s requirements on the investment scope of private equity-type funds.
Qualification Requirements on Limited Partners (LP)
According to the Interim Measures, an LP of a QFLP fund shall meet the following requirements:
(1) Institutions or individuals that have corresponding capacity for risk identification and risk bearing capabilities, as well as relevant investment experience.
(2) Institutional investors shall have sound governance structures and well-developed internal controls and not have been subject to any punishment by national, local judicial authorities or relevant regulatory institutions in the past three years. As for a foreign institutional investor, its net assets shall be no less than USD 5 million or its equivalent, and its single investment in a QFLP fund shall be no less than USD 1 million or its equivalent; as for a domestic institutional investor, its net assets shall be no less than RMB 10 million, and its single investment in a QFLP fund shall be no less than RMB 1 million.
(3) As for a domestic or foreign individual investor, their financial assets shall be no less than RMB 5 million or its equivalent or they shall have an average annual income of not less than RMB 500,000 over past three years, and their single investment in a QFLP fund shall be no less than RMB 1 million.
It is noteworthy that the qualification requirements for an investor of a QFLP fund (i.e., LP) are higher than the requirements for a qualified investor of a domestic private fund.
The Interim Measures do not require a QFLP fund manager to register with the AMAC as a private fund manager (PFM). Instead, the Interim Measures provide that a QFLP fund manager shall register with the AMAC as a PFM if the relevant laws and regulations require so. Hence, we understand that a QFLP fund manager incorporated in Beijing is not required to be registered as a PFM with the AMAC if it does not raise funds onshore. Notably, if a QFLP fund manager hopes to raise a RMB fund in China, it is mandatory to register itself with the AMAC as a PFM before conducting fundraising activities in accordance with the relevant regulations governing private funds, and file the RMB fund with the AMAC.
The application procedures of the Beijing QFLP pilot program are similar to those in Shanghai, i.e., submitting the application documents to competent authorities, obtaining the QFLP pilot qualification after being reviewed and approved by the competent authorities, setting-up the QFLP fund manager (if applicable), handling PFM registration (if applicable) and finally launching QFLP funds.
The updates in the Beijing QFLP pilot program further simplified the QFLP application procedures. Beijing adopts a “one-stop shop” model, providing direct one-on-one personal service from the QFLP qualification application to PFM registration. With respect to the application review, similar to other QFLP pilot cities like Shanghai, Beijing adopts the joint review mechanism, meaning regulatory authorities such as the BFRB, the BAMR and the State Administration of Foreign Exchange Beijing Branch will jointly review the QFLP application. The Joint Review Office will issue a written approval for the QFLP pilot and grant an investment quota to the applicant once approved.
We believe that the facilitation of the application procedures and the expansion of the investment scope may increase the functionality of Beijing’s QFLP pilot program, and help Beijing attract high-quality domestic and foreign asset management associations. Nonetheless, details such as tax policies remain to be clarified through future practice.
We will continue to pay close attention and keep our clients apprised of any important developments.