China's PE associations become popular

China’s fund managers and institutional investors are joining national and regional PE associations in order to get a jump on proposed rules and have a voice in regulatory matters.

Fund managers and institutional investors have been signing on as members of local private equity associations in the Chinese cities of Tianjin, Guangdong, and Wuxi over the past few weeks in a rush to comply with new draft regulations issued by the China Securities Regulatory Commission (CSRC). 

The China Securities Investment Fund Industry Association, a national-level private equity association founded by the CSRC last June, already has 400 national and local associations as members, according to the website of the Asset Management Association of China (AMAC). Some have applicants waiting to join. The Guangdong Equity Investment Association has 260 hopefuls.

The membership surge is driven by the CSRC's recently-released draft rules requiring private equity funds investing a cumulative amount of more than RMB 100 million (€12 million; $16 million) in securities to register with AMAC, an entity set up by the CSRC specifically for fund registration.

AMAC may not be able to accommodate the number of managers hoping to register, so to lighten its load it is trying to encourage membership in local associations, said Clifford Chance partner Ying White.

Some of the managers who have signed on to associations include CDH Investments and China Science & Merchants Investment Management, while pension funds and insurance companies make up the bulk of the institutional investors, according to the AMAC website.

The industry really wants to be regulated lightly versus the high-cost, intrusive regulation that is more suited to a public fund.

Ying White

Another reason behind the interest in joining is that fund managers now see membership as a channel of communication with the CSRC and they can better demonstrate the industry's efforts to self-regulate, Crosby Asset Management chairman Johnny Chan told Private Equity International

For the past few years, many of these private equity associations have been pushing for more self-regulation in the industry as the national regulations are being hammered out. For example, the China Association of Private Equity publishes guidelines for the industry every year, which the regulators likely takes into consideration when drafting laws, Chan said.

“The industry really wants to be regulated lightly versus the high-cost, intrusive regulation that is more suited to a public fund,” added White, from Clifford Chance. 

She believes that the recent CSRC rules requiring registration with AMAC (and not directly with the CSRC) is a sign that officials agree with the self-regulation thesis for now.

Even for those that might not end up falling under AMAC’s scope, registering confers a sense of institutional credibility, so they choose to register early, White said.