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PE firms oppose amendment to law on investment funds

By Wang Xinyuan (Global Times)

08:44, August 14, 2012

A total of 25 venture capital and private equity (PE) associations appealed to China's top legislative body Monday, opposing a draft proposal to include PE into the amended law on securities investment funds, and demanding that a separate law to be established in view of the specific features of the PE sector.

The Standing Committee of the National People's Congress (NPC) proposed on July 6 to amend the law on securities investment funds to incorporate PE funds as it has done with public funds in the past.

The necessity to amend the current law to cover PE funds emanates from the fact that PE funds are currently unregulated, which may lead to infringement of investors' interest and financial and social risks, the NPC said on its website. The drafted amendment will be delivered to the NPC Standing Committee for a second deliberation at the end of this month.

Policymakers are concerned about increasing practice of illegal fundraising in the name of private equity funds, said Hu Fangri, deputy secretary-general of the China Venture Capital Association, which led the petition.

Hu suggested that authorities establish a separate law specifically targeting PE funds instead of mingling it with public funds, which have different investment objectives.

"We are opposed to PE funds being regulated in the same way as public funds," Hu told the Global Times, noting that PE funds invest in equities of private companies, while public funds invest in securities of listed companies.

Public fund companies are required to disclose net asset value daily, but it is unrealistic for PE funds to report the value of invested assets monthly or quarterly, not to mention daily, Hu said, adding that a private firm's assets are normally audited yearly.

"The draft amendment puts PE firms under strict regulation, which everybody (in the sector) hates to see," Qian Weichang, secretary-general of Shanghai Venture Capital, told the Global Times.

Private equity often targets high net worth individuals instead of the mass population. Therefore, it does not need strict regulation, Zheng Jinqiao, president and CEO of Richlink International Capital, told the Global Times, noting that policymakers should focus on encouraging PE development instead of tightening regulations.

"The more an industry is regulated, the quicker it dies," Zheng said.

However, some experts have different opinion. Wu Xiaoling, deputy director of the Financial and Economic Committee of the NPC, told the Securities Times Monday that the reason why PE funds should be included in the amended law is that equity, even though not listed, is one a of securities.

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