Kicking off 2011 with a new regulatory breakthrough for RMB funds, the Shanghai Municipal Financial Services Office released the long-awaited Implementation Measures on Pilot Program of Foreign-invested Equity Investment Enterprises in Shanghai (the "Pilot Measures"), officially dated December 30, 2010. The Pilot Measures is a product of long and intensive coordination by the Shanghai Municipal Financial Services Office with the Municipal Commission of Commerce, the Municipal Administration of Industry and Commerce and other key authorities such as the Shanghai State Administration of Foreign Exchange.
Shanghai is now the first city in the nation to create a unified authority to specialize in and handle emerging operational issues for RMB funds on this scale. This authority is called the Joint Conference for Pilot Program of Equity-Investment Foreign Invested Enterprises and includes all of the regulatory authorities necessary to facilitate the operations of RMB fund GPs, Managers, and Funds in Shanghai. It is expected that this "one-stop shopping" Joint Conference for RMB funds will rival the level of services and solution development available under all other RMB fund regimes currently in existence.
The Pilot Measures introduce implementation provisions for three types of RMB private equity fund entities: PE Manager FIEs, Equity-Investment FIEs, and Pilot Equity-Investment FIEs. Each entity may be established in the form of a partnership enterprise and the PE Manager FIE may also be established in the form of a company.
The PE Manager FIE represents a significant improvement over the existing rules for fund management vehicles in Shanghai because of an express ability to serve as the GP of a "pure" RMB Fund and invest in such Fund without changing the Fund's nature in regard to foreign-investment limitations. This means wholly foreign owned GPs are allowed to invest up to 5% in an onshore fund and that fund can invest in industries restricted from foreign investment as well as invest without approvals. The Equity-Investment FIE represents the first locally sanctioned RMB Fund with foreign investment that sheds all of the restrictions imposed on so-called FIVCIEs with respect to scope of investment industry and approval procedures. The Pilot Equity-Investment FIEs go even further beyond this step but are only available to certain qualified sovereign wealth funds, pension funds, endowment funds, charitable funds, funds of funds (FOFs), insurance companies, banks, securities companies and other foreign institutional investors approved by the Joint Conference. Foreign exchange issues and deployment for investments by Pilot Equity-Investment FIEs are addressed in the context of a newly introduced custodian bank framework. The Pilot Measures set out a number of additional operational details and will be effective by February 1, 2011.
The original Chinese version will be released early next week.
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