China seeks to fine-tune eligibility thresholds for private fund investors

China's securities regulator has proposed fine-tuning the eligibility thresholds for individual investors in private funds under the country's first dedicated set of rules governing private fund fundraising, aimed at promoting the sector's sound and well-regulated development.

The China Securities Regulatory Commission on Friday released the draft measures on the supervision and administration of privately offered investment fund fundraising for public consultation, with feedback due by October 4.

Under the draft, a qualified individual investor must have at least two years of investment experience or have served as a senior executive at a financial institution. The investor must also have household financial assets of at least 5 million yuan ($745,020), household net financial assets of at least 3 million yuan, or average annual income of no less than 500,000 yuan over the previous three years.

Qualified individuals must also invest at least 1 million yuan in a single private fund and possess the capacity to identify and bear the associated risks.

The financial eligibility thresholds were optimized from those set under the interim administration measures of private funds issued in 2014, which required individual investors to have financial assets of at least 3 million yuan or an average annual income of at least 500,000 yuan over the previous three years.

Comprising 45 articles across seven chapters, the draft comprehensively regulates fundraising activities, stressing that sellers must fulfill their duties while investors bear the risks of their decisions, and prohibiting any form of principal or return guarantee, misleading promotion or false advertising.

The draft also clarifies requirements for fundraising procedures and documents while reinforcing the suitability management and risk disclosure obligations of private fund managers and distribution institutions.