In order to strengthen the self-discipline management of private equity investment funds, standardize private equity fund business, and protect the legitimate rights and interests of investors, the China Securities Investment Fund Industry Association officially issued the Private Equity Investment Fund Operation Guidelines on April 30. There are 42 operational guidelines, covering the raising, investment, operation and other links of private securities funds.
Industry insiders believe that the Operation Guidelines will help regulate the compliant operation of various managers, protect the interests of investors and improve market stability. In the future, with the implementation of the Operation Guidelines, the private equity industry will enter a new stage of more standardized and professional development, and the continuously optimized industry development environment will also help to enhance the international competitiveness of China's private equity funds.
As for the issues related to quantitative investment that the market is concerned about, the insiders believe that the relevant provisions of the Operation Guidelines indicate that the supervision does not prohibit quantitative investment or procedural trading, but puts forward higher requirements for its risk control system, fair trading and the construction of a system to prevent the transfer of benefits.
Improve the normative purification industry ecology
Since the end of April last year, during the public consultation period of the Operation Guidelines, the opinions of industry institutions have mainly focused on the raising and survival threshold, the opening frequency of redemption and redemption and the lock-in period arrangement, portfolio investment, OTC derivatives trading, transition period arrangement, etc. Compared with the draft for comment, the Operating Guidelines moderately relaxed the above terms.
"The survival threshold of 10 million yuan in the draft is reduced to 5 million yuan, and there is also a certain transition period. The starting time of long-term less than 5 million yuan is set as January 1, 2025, which is a small advantage. According to market estimates, the proportion of products with private equity funds less than 5 million yuan is very small, including a large number of 'shell' products that have no operation in essence. ”Some insiders pointed out that.
With regard to the opening frequency of redemption and share lock up period, China Infrastructure Association absorbed relevant opinions, relaxed the opening frequency of redemption to at most once a week, and relaxed the six-month lock up period requirement to three months. At the same time, it allowed private equity funds to replace the mandatory lock up period arrangement by setting short-term redemption fees and return the option to the market.
In addition, in terms of the "double 25%" portfolio investment requirements, although there is no change in the proportion compared with the draft for comment, the application has been optimized. For example, if the first 25% requirement is met and the bottom layer is invested in a single private equity fund, the second 25% limit can be exempted. This is also the basis for the China Infrastructure Association to fully listen to the opinions of institutions, Optimization treatment combined with supervision purpose.
As the first independent regulatory document for private equity investment funds, the formal issuance of the Operational Guidelines will undoubtedly have a profound impact on the private equity industry and even the asset management industry. Sun Longlong, a lawyer from Shandong Ruiyang (Beijing) Law Firm, analyzed that from the perspective of regulatory content, the Operation Guidelines put forward many new regulatory requirements in terms of fund survival scale, redemption opening frequency and share locking period, portfolio investment, OTC derivatives trading, etc., which will undoubtedly have a significant impact on the operation and management of private equity investment funds.
Industry insiders believe that under the requirement of a minimum existing scale of 5 million yuan, small and micro products may face the liquidation test in the future, while small private placements focusing on small and micro products with insufficient continuous investment capacity may face survival challenges, and some private "shell" products will face the risk of liquidation.
Sun Longlong said that it can be predicted that the managers of microenterprise private equity funds will accelerate the clearing in the future. According to the estimation of "the scale managed by small-scale private equity institutions without sustainable operation ability is only several billion yuan" of China Infrastructure Association, there may be more than 600 private equity investment fund managers with management scale less than 5 million yuan. After the official implementation of the Operational Guidelines on August 1, 2024, these fund managers may be cleared soon. From the perspective of regulatory effect, the issuance of the Operation Guidelines will undoubtedly further regulate the "small, disorderly, scattered and poor" business types of regulators, which is conducive to purifying the industry ecology and promoting the healthy development of the industry.
In order to guide private fund managers to improve their professional investment ability and diversify investment risks, the Operation Guidelines put forward the "double 25%" portfolio investment requirements with reference to the Regulations on the Operation and Management of Private Asset Management Plans of Securities and Futures Operating Institutions. "It is undoubtedly a bad news for some products that like to hold a single ticket with high concentration and gamble with a single ticket," pointed out the insiders.
Strengthen the supervision of derivatives trading and program trading
The Operational Guidelines require private equity funds to carry out OTC derivatives transactions with the goal of risk management and asset allocation, and regulate the overall risk exposure of a single private equity fund participating in OTC derivatives transactions from the perspective of reducing leverage and preventing risks.
Since February 2024, the scale and leverage of private equity funds participating in long short income swap (DMA) business have decreased, and risks have been released. As for the leverage transactions of private securities funds through DMA in the early stage, the Operation Guidelines clearly require that private securities funds should not participate in DMA business more than twice the leverage to further control the level of business leverage.
In addition, the Operational Guidelines specify that the notional principal of private equity funds participating in snowball structured derivatives contracts shall not exceed 25% of the net assets of the fund, which is in line with the implementation criteria of private equity management plans of securities and futures operating institutions participating in snowball structured derivatives to reduce regulatory arbitrage space.
According to the analysis of insiders, trusts, securities firms and other institutions have already implemented a 25% restriction on their participation in snowball structured derivatives. This Operation Guide has leveled the regulatory caliber of private equity funds and other institutions participating in snowball structured derivatives. In the future, the highlight time of structural derivatives business such as Snowball has passed, and the retail threshold has been greatly improved. The combination of "25% snowball+other strategies" may gradually appear in the market.
The regulation of program trading has been one of the focuses of the market since this year. Article 21 of the Operational Guidelines puts forward requirements for the development of risk control system, improvement of monitoring system, and maintenance of transaction records for procedural transactions.
Guotai Junan Asset Management Fund Investment Department (private placement) team believes that this article emphasizes the process standardization, system completeness and major fluctuation response requirements of program trading. At the same time, it also shows that the regulation does not prohibit the procedural transactions, but allows the orderly development of compliant procedural transactions. In general, the Operation Guidelines further clarify the requirements for compliance and fairness of the private equity fund industry, and there are no relevant requirements that significantly affect the normal operation of mainstream quantitative strategies.
Quantified Investment believes that at present, most quantitative private placements are operated under the policy provisions, with a complete and compliant trading system and operation and maintenance system, which also meet most requirements in the Operation Guidelines, and only need to make some detailed modifications. On the whole, there is little impact on the quantitative private placement that has been operated in compliance. However, in the long run, Article 21 will actively promote the further standardization of the quantitative industry, and enhance the industry's ability to prevent extreme risks, thus facilitating the long-term development of the quantitative industry.
A head quantitative private placement company said that the content of this program transaction was more rich and specific, the risk control system and the handling criteria in extreme cases were more standardized, and transaction files were retained. This puts forward higher requirements for risk control of program trading. Quantitative private placement needs to make certain adjustments to the supervision and improve the level of risk control.
Emphasize fair trade and prevent benefit transmission
Article 32 The provisions on the fair trading system and abnormal trading monitoring mechanism stipulate that "private equity fund managers should strictly control reverse trading on the same day", which has become the focus of recent market discussions. The insiders worry that quantitative "T+0" strategies may be restricted by the provisions and cannot operate.
The Guotai Junan Asset Management Fund Investment Department (private placement) team believes that this clause does not specify whether the reverse transaction object on the same day includes convertible bonds and futures under the current "T+0" trading system, which needs to be kept in mind. However, some insiders pointed out that as early as 2011, the Guiding Opinions on the Fair Trading System of Securities Investment Fund Management Companies and 2018, the Measures for the Management of Private Asset Management Business of Securities and Futures Operating Institutions had relevant provisions on "reverse trading on the same day". This provision was in line with the public offering, mainly preventing the transfer of benefits, not limiting quantification.
Volume investment said, first of all, it should be clear that it is not uncommon for the same subject matter to trade and cash on the same day in actual transactions. These transactions are usually determined by signal strength or risk control model. Secondly, from the purpose, the Operation Guidelines proposed to "strictly control reverse transactions on the same day", in order to prohibit unfair transactions and transactions of benefit transmission. Therefore, regular investment strategy transactions are not affected, and only records need to be kept in compliance. Third, in the daily operation of quantitative transactions, detailed records such as transaction codes, issuance and cancellation of orders are usually saved, so it is not necessary to make too big adjustments to the policy model that always runs in compliance.
In addition, the Operation Guidelines put forward stricter requirements for self owned capital investment, requiring private fund managers to treat their own capital investment fairly with the private equity investment funds they manage or the asset management product investment they serve as investment advisers.
Quanpai Investment said that before that, most managers in the industry had strictly managed their own funds. This time, the Operation Guidelines further emphasized on strengthening the standardized management of their own funds, which will not only further improve the industry norms, so that the behavior of private fund managers has rules to follow; In addition, it will also reduce the impact of proprietary trading on fund products, thus requiring managers to effectively handle their own interest relationship with investors, which undoubtedly helps the industry firmly adhere to the awareness of "investors' interests first and fair trading principle". In the long run, this requirement will also improve the management ability and fairness awareness of quantitative private equity managers on their own funds, ensure the effective isolation of their own funds from management business, and thus facilitate the long-term positive development of the quantitative industry.
A head quantitative private placement company said that, in view of this provision, the company will continue to improve research methods and investment decision-making processes, ensure that all portfolios enjoy fair investment decision-making opportunities, and establish a fair trading institutional environment. The investment decision-making team for external investment of self owned funds should be independent of the decision-making personnel and processes for external investment of private funds. On the basis of the management and confidentiality system of portfolio investment information of the company, the positions and transactions between different portfolio managers and other major non-public investment information should be isolated from each other. At the same time, it will improve the consistency of self operated products and external product strategies, and prevent benefit transfer and other phenomena.
