In a move to formalise a 2007 pilot programme that allowed securities firms to enter direct private equity, guidelines published by The China Securities Regulatory Commission (CSRC) have confirmed Chinese brokerages will be able to raise private equity funds using third party capital.
The development came months after news reports indicated the CSRC was planning to let select brokerages’ asset management units set up private equity funds as early as this year.
“We are considering turning the pilot program of PE investment by securities companies into one of their regular businesses,” Wenyuan Huang, director of the department of institutional investors at CSRC, was quoted as saying in a China Daily report in June.
Before now, domestic brokerages were only able to invest directly in unlisted companies. According to the Securities Association of China, a total of 34 securities firms have gained the license for PE investment and the total investment value has reached RMB10.2 billion.
According to the guidelines, securities firms are not allowed to invest more than 15 percent of their own capital in their private equity businesses. Also, the number of limited partners in a private equity fund set up by a brokerage may not exceed 50.
To avoid conflicts of interest, the guidelines said a brokerage firm’s private equity business could not invest in companies once the firm has become their financial advisers, sponsors or underwriters. Moreover, the private equity business of a securities firm should be independent from the firm in terms of staffing, financials, assets, management and operations.
Last month, Haitong Securities was reportedly set to launch a private equity fund to help overseas expansion of domestic companies. Reuters reported that the fund had a total target of RMB10 billion and was expected to raise RMB3 billion initially.